Edited version of administratively binding advice

Authorisation Number: 1012473412941

Advice

Subject: Administrative Binding Advice - Superannuation Guarantee (SG)

Question 1

Does the hourly rate paid to employees, under the Agreement, form part of ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer: Yes, the hourly rate paid in relation to the ordinary hours of work with the overtime component removed would form part of the OTE for the purposes of subsection 6(1) of the SGAA, please see 'Explanation' below.

Question 2

Does the piece rate paid to employees, under the Agreement, form part of OTE for the purposes of subsection 6(1) of the SGAA?

Answer: Yes, the piece rate paid with the overtime component removed would form part of the OTE for the purposes of subsection 6(1) of the SGAA ,please see 'Explanation' below.

Question 3

Which allowances in the allowances clause of the Agreement form part of the OTE for the purposes of subsection 6(1) of the SGAA?

Answer: All allowances as defined in the allowances clause of the Agreement form part of the OTE for the purposes of subsection 6(1) of the SGAA.

Question 4

Does the meal allowance paid to employees, under the Agreement, where they are required to work for 9.6 hours or more form part of OTE for the purposes of subsection 6(1) of the SGAA?

Answer: Yes, please see 'Explanation' below.

Question 5

Does the entitlement to receive payments for statutory holidays, annual leave and annual leave loading form part of the OTE for the purposes of subsection 6(1) of the SGAA?

Answer: Yes, please see 'Explanation' below.

This advice applies for the following period

The period of operation of the Agreement.

Relevant facts

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

The employer requested guidance in relation to calculating SG and provided examples showing the various components that may comprise a wage for one of their employees.

The employer has a Collective Agreement (the Agreement).

The Agreement covers all employment matters to the exclusion of any other agreement, award or industrial instrument whatsoever. The Agreement contains clauses that provide for the conditions of employment, the rates of pay, the wages composition including hourly rates and piece rates, allowances, superannuation, hours of work and meal breaks, leave arrangements and other matters.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 subsection 6(1)

Explanation

Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:

(a)  the total of:

(i)  earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997;

(ii) earnings consisting of over-award payment, shift loading or commission; or

If the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter - the maximum contribution base.

The maximum contribution base for the 2012/13 year of income is $45,750 per quarter. This amount is indexed annually according to the indexation factor.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) explains the meaning of OTE as defined in subsection 6(1) of the SGAA. The meaning of OTE is relevant to employers for the purposes of calculating the minimum level of superannuation support required for individual employees under the SGAA.

What are the ordinary hours of work

An employee's 'ordinary hours of work' are the hours specified as his or her ordinary hours of work under the relevant award or agreement, or under the combination of such documents, that governs the employee's conditions of employment.

The document need not use the exact expression 'ordinary hours of work', but it needs to draw a genuine distinction, for the purposes of the award or agreement, between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'.

If the ordinary hours of work are not specified in a relevant award or agreement, the 'ordinary hours of work' are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. This is not necessarily the minimum or maximum number of hours worked or required to be worked.

In such cases, it may often not be possible or practicable to determine normal, regular, usual or customary hours of an employee's work. If so, the actual hours worked should be taken to be the ordinary hours of work.

Paragraphs 25 and 26 of SGR 2009/2 specify that earnings 'in respect of ordinary hours of work' means all earnings other than overtime. Paragraphs 25 and 26 state:

25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are otherwise referrable only to overtime or to other hours that are not ordinary hours of work. There is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work.

26. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA is what amounts are 'earnings in respect of ordinary hours of work'. This could in some cases a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of this ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement.

The Agreement provides the hours of work for your employees. The Agreement provides that the ordinary hours of work shall be an average of 38 hours per week and can be worked as 38 hours within a work cycle not exceeding 7 consecutive days; or 76 hours within a work cycle not exceeding 14 consecutive days; or 114 hours within a work cycle not exceeding 21 consecutive days; or 152 hour within a work cycle not exceeding 28 consecutive days. The Agreement also provides that start and finish times and total hours may vary from week to week depending on workloads and deadlines.

In accordance with this, an employee can work any variation of hours per week in a 24 hour cycle from Monday to Sunday, as long as they average 38 hours in a week; or 72 hours in a fortnight; or 114 hours over a three week period; or 152 hours over a four week period. For example, an employee may work 60 hours one week, 20 hours the next week, 45 hours the week after and 32 hours in the fourth week to meet the "152 hours within a work cycle not exceeding 28 consecutive days" under the Agreement.

Given this, the Commissioner does not consider the 'ordinary hours of work' of the employee's of the employer to be limited to 7.6 hours in any one day, but rather a total of 38 hours in any rolling 7 day period, 76 hours in any rolling 14 day period and so on.

This interpretation is consistent with the interpretation the Commissioner has applied to the relevant industry Award and other similar enterprise/collective agreements. The Agreement does not specify or define the ordinary hours of work or limit the normal working period. In accordance with this, an employee can work any variation of hours per week in a 24 hour cycle on Monday to Sunday, as long as they don't exceed more than the specified number of hours in any one day or the specified number of hours in any fortnight.

The Agreement does not clearly distinguish overtime or other hours from ordinary hours. As per paragraph 14 of SGR 2009/2 the Agreement needs to draw a genuine distinction between ordinary hours and other hours. The Agreement provides that no high rate of pay will be payable for overtime worked and that overtime will be paid at the applicable loaded hourly rate, which is why the overtime hours would not be remunerated at a higher rate. But the Agreement does not provide for what overtime is and, given the periods covering the hours of work and the start and finish times, it is not clearly discernable on a daily basis.

Question 1 - Hourly rate of pay

The ordinary hours worked (including hours of leave taken in place of ordinary hours of work and paid public holidays on which the employee did not work) by an employee of the employer should be 38 hours within a work cycle not exceeding 7 consecutive days; or 76 hours within a work cycle not exceeding 14 consecutive days; or 114 hours within a work cycle not exceeding 21 consecutive days; or 152 hour within a work cycle not exceeding 28 consecutive days.

The Agreement does not indicate that the piece rate is based on, or is referable to, ordinary hours of work. The piece rate is simply based on the amounts set out in the relevant tables in the agreement according to the employee classifications. Therefore where an employee is paid on an hourly rate for some hours and piece rate, the piece rate cannot be considered when working out the ordinary hours of work. In effect any hours of work paid at the hourly rate, for an employee who is also paid on a piece rate basis, would form part of OTE, up to the hours required by the relevant work cycle, in addition to any payments made on piece rate basis (see Piece rate of pay below).

You advised that as per the Award the hourly rates and piece rates include an industry disability allowance and an overtime allowance, this is also the case under the Agreement.

The hourly rates and the piece rates include an overtime component. As a result, the total remuneration from the hourly rate of pay should have the overtime component removed.

Therefore, the hourly rate of pay less the overtime component, paid in relation to the ordinary hours worked should be included in the calculation of OTE for the purposes of subsection 6(1) of the SGAA. Any additional hours worked above those required by the relevant work cycle would be considered 'other hours' and not form part of the OTE for the employee.

Question 2 - Piece rate of pay

Paragraphs 230 to 234 of the SGR 2009/2 present Commissioner's views on how to determine an employee's OTE where the employee's wage is calculated on a piece-rate basis. They state:

230. Some employees may receive their wages calculated on a piece-rate basis, that is, on the basis of completion of the number of units or items rather than on the number of hours worked. For example, payments could be on the number of kilometres driven, the number of buckets filled with fruit, or the number of items of clothing completed.

231. In certain circumstances a minimum weekly wage may be set by an award or agreement which also provides for standard hours per week. This allows for the payment of leave entitlements to be based on that minimum weekly wage...

232. The rate of pay may recognise the conditions of the work required and incorporate various components into the one rate, for example the weekly wage, allowances and overtime. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable.

233. As the hours actually worked results in the number of units or items completed, which provides the basis of calculation of the wage payments, those hours worked are the employee's 'ordinary hours of work'.

234. Unless the employee is subject to an award or agreement which specifies the ordinary hours of work, all payments made on a piece-rate basis are included in an employee's OTE and in 'salary or wages'

The Agreement does not indicate that the piece rate is based on, or is referable to, ordinary hours of work. The piece rate is simply based on the amounts set out in the relevant tables under the relevant employee classifications.

You advised that the hourly rates and piece rates include an overtime component. As a result, the total remuneration from the hourly rate of pay should have the overtime component removed.

Consequently, the whole amount of the salary paid on a piece rate basis, less the overtime component will form part of the employees OTE in addition to any hours paid at the hourly rate up to the hours required by the relevant work cycle. If the employee has completed their ordinary hours of work and receives a piece rate payment for additional work this piece rate payment would not form part of the OTE for the employee because they have already worked their ordinary hours of work and any payment made outside of the ordinary hours of work would be considered payments for other hours that are not ordinary hours of work.

Question 3 - Allowances

Paragraph 27 of SGR 2009/2 relates to allowances and loadings and states:

27. Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. Examples:

a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;

a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;

a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities.

These kinds of payment are OTE except to the extent that they:

are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses…..

relate solely to hours of work other than ordinary hours (see paragraphs 41 to 42 of this Ruling).

In accordance with paragraph 27 of SGR 2009/2 all of the allowances form part of OTE because they are paid to your employee's to compensate them for certain conditions relating to their employment.

If the employee has worked additional hours above those required by the relevant work cycle these hours would be considered 'other hours' and any allowances paid in relation to these hours would not form part of the OTE for the employee.

Question 4 - Meal Money

Under paragraph 25 of SGR 2009/2 all amounts of earnings in respect employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work.

The meal money is an allowance payable in accordance with the Agreement. This meal money is not directly referable to overtime hours because it is paid to an employee who is required to work two or more continuous hours in excess of 7.6 hours on any day. As per the 'Hours of work' section above, and the Agreement, there is no set amount of hours an employee must work in a day and the hours worked on any one day provide no delineation between ordinary hours and overtime hours.

Therefore, this meal allowance forms part of the OTE for your employee's under the SGAA because it is not directly referable to overtime or other hours.

If the employee has worked additional hours above those required by the relevant work cycle these hours would be considered 'other hours' and any meal money paid in relation to these additional hours would not form part of the OTE for the employee.

Question 5 - Statutory holiday's entitlement, annual leave and annual leave loading

Although leave payments are not paid for actual attendance at work or for services, the salary or wages that an employee receives in respect of periods of paid leave is a continuation of their ordinary pay during their 'ordinary hours of work' and therefore take the place of earnings in respect of actual hours worked. Therefore, any salary or wages the employee receives while on a public holiday, annual leave, long service leave or sick leave is in respect of their ordinary hours of work and is OTE.

Paragraphs 32 to 35 of SGR 2009/2 relate to paid leave and holiday pay and state:

32. Subject to the exclusions mentioned at paragraph 34 of this Ruling, salary or wages that an employee receives, at or below his or her normal rate of pay for ordinary hours of work, in respect of periods of paid leave is simply a continuation of his or her ordinary time pay. It is OTE. It does not matter whether the entitlement to take the paid leave accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer's discretion.

33. Similarly, salary or wages received at the ordinary time rate in respect of public holidays, rostered days off and the like is OTE.

34. However, payments made while a worker is on paid parental leave or other kinds of ancillary leave are not OTE as these types of leave payments are excluded from being 'salary or wages' in the SGAA by Regulation 7AD of the Superannuation Guarantee (Administration) Regulations 1993 (SGAR): see paragraph 59B of this Ruling.

35. The principle in paragraph 32 of this Ruling does not extend to extra payments by way of 'leave loadings', and like payments, that are demonstrably referable to a notional loss of opportunity to work overtime, or similar.

Therefore, in accordance with the above, the entitlement to receive payments for statutory/public holidays and annual leave form part of the OTE for the purposes of subsection 6(1) of the SGAA.

The annual leave loading does not form part of OTE for the purposes of subsection 6(1) of the SGAA because it is able to be referred to a notional loss of opportunity to work additional hours and/or receive certain allowances that are not available when the employee is on annual leave.