Edited version of administratively binding advice

Authorisation Number: 1012518298823

Advice

Subject: Superannuation guarantee - ordinary time earnings

Question 1

Should the 'all in rate', as defined in the workplace agreement, be used in calculating an employee's OTE for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer:

No, the component of the 'all in rate' that relates to overtime is able to be expressly distinguished from other amounts used in the calculation and therefore, the overtime component of the 'all in rate' should be removed from the 'all in rate' when calculating an employee's OTE for the purposes of subsection 6(1) of the SGAA. Please see 'Explanation' below.

Question 2

If an employee works more than the agreed 7.6 ordinary hours on any day from 6.00 am to 6.00 pm Monday to Friday, is the payment for the additional hours at the 'all in rate' part of OTE for the purposes of subsection 6(1) of the SGAA.

Answer:

No, wages paid to an employee for work in excess of the agreed 7.6 hours per day (between 6.00 am to 6.00 pm Monday to Friday) are not required to be included in OTE for the purposes of subsection 6(1) of the SGAA. In addition, any wages paid to employees for work on weekends or outside of the span of working hours (6am to 6pm Monday to Friday) do not form part of OTE. Please see 'Explanation' below.

This advice applies for the following period:

For the period of operation of the Award and the Workplace Agreement.

Relevant facts and circumstances

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 has entered into a new workplace agreement, whereby, employees will be paid wages under a fixed hourly rate.

· The fixed hourly shall compensate the employees for various workplace agreement entitlements and allowances.

· The employees paid the fixed hourly rate are to work 40 hours per week.

· The employees paid the fixed hourly rate are not entitled to a rostered day off because the fixed hourly rate compensates them for the monthly rostered day off which is provided for in the Award and the workplace agreement.

· The fixed hourly rate is paid to employees for the actual hours worked and the rate per hour does not change regardless of the number of hours the employee actually works.

· The workplace agreement covers all employment matters and is supported by the Award. 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

The SGAA places a requirement on all employers to provide a minimum level of superannuation support for their eligible employees by the quarterly due date, or pay the superannuation guarantee charge. The minimum level of support is calculated by multiplying the charge percentage (currently 9.25%) by each employee's earnings base.

From 1 July 2008, an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA as:

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

(C) (Repealed by No 15 of 2007)

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

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

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.

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.

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'.

In relation to your employees, the workplace agreement provides that the ordinary hours of work for employees are 38 hours per week (7.6 hours per day) with the maximum number of hours worked by any employee not more than 54 hours per week.

Example 2 and Example 3, contained in paragraphs 87 to 98 of SGR 2009/2, deal with situations whereby there is an award and an agreement which provide for different ordinary hours of work. In both examples the agreement prevails over the award where there is a difference in the ordinary hours.

In your situation, employees are engaged under the workplace agreement. As stated above the workplace agreement provides that the ordinary hours of work for employees are 38 hours per week (7.6 hours per day) with a maximum of 54 hours irrespective of if they are paid the fixed hourly rate or paid the applicable rate of pay for their level of expertise within the industry. In addition, the workplace agreement provides the span for ordinary hours of work.

Under the terms of the Agreement (which overrides the terms of the Award to the extent of any inconsistency), a distinction is made that work hours shall be up to thirty eight hours per week (7.6 hours per day). Therefore, the ordinary hours of work for an employee who is paid the fixed hourly rate of pay for superannuation guarantee purposes are 38 hours of work in a week at 7.6 hours per day, worked between the span for ordinary hours of work.

If an employee works more than 7.6 hours on any one day the payments for the hours exceeding 7.6 hours are for other hours / overtime and are not required to be included as part of OTE. In addition, any wages paid to employees for work outside of the span for ordinary hours of work do not form part of OTE.

Rostered Day Off (RDO)

The ordinary hours of work are specified in the workplace agreement. Whilst the fixed hourly rate compensates the employees for a RDO this does not change the ordinary hours of work under the workplace agreement.

Under the fixed hourly rate, employees have chosen to be compensated for the RDO rather than taking the RDO every four weeks. This compensation is for an entitlement that the employees have forgone in order to receive the fixed hourly rate and does not increase the ordinary hours of work for the employees under the Agreement.

Unable to proceed

The fixed hourly rate of pay compensates the employee for any lost time due to conditions that mean work must cease. Therefore, any payments for these conditions provided for in the workplace agreement and the Award would not be paid to employees if they were to lose time due to conditions that mean work must cease and work less than a 7.6 hour day. Payment under the fixed hourly rate will only be made for the actual hours worked.

If an employee is unable to work a full 7.6 hour day due to conditions that mean work must cease then only the payment made for the hours actually worked would be included in OTE. If an employee works more than 7.6 hours in a day to make up for lost time due to conditions that mean work must cease on a previous day then only the payments for the first 7.6 hours would be OTE and any payments made for additional hours would be payments for other hours / overtime and not form part of OTE.

Overtime payments

Any hours worked in excess of, or outside the span of those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In paragraph 25 of SGR 2009/2 the Commissioner has ruled that:

12. All amounts of earnings in respect of 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. There is no such thing as earnings that are merely in respect employment and are not OTE because they are not in respect of any particular hours of work.

Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless these are remuneration for overtime or other hours that are not ordinary hours of work.

In paragraph 14 of SGR 2009/2 the Commissioner has stated that "… 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." Whilst, in this statement, the Commissioner has outlined that he expects that the other hours will be remunerated at a higher rate this does not necessarily have to occur. The definition of OTE relies on whether the payment is made in relation to 'ordinary hours of work' rather than whether the level of pay is differentiated between ordinary hours and other hours. 'expects' as defined in the Macquarie Dictionary (Version 5) is 'to suppose or surmise' and does not impose a requirement.

Under paragraph 41 and 42 of SGR 2009/2 payments made to employee's for work performed that is outside of the employee's ordinary hours of work are not OTE. This is so whether the payments are calculated at an hourly rate or the employee receives a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referable to overtime hours as remuneration for overtime hours worked.

The workplace agreement specifies that all time worked beyond the ordinary hours of work as prescribed, inclusive of time worked for accrual purposes as prescribed, will be paid for at the at a rate of time and a half for the first two hours and double time thereafter. There is no provision in the workplace agreement for or in relation to overtime hours for those employees who have elected to be remunerated by the fixed hourly rate, the workplace agreement does however provide that hours of work shall be thirty eight hours per week (7.6 hours per day) so any hours in excess of the stipulated thirty eight hours per week (7.6 hours per day) will be overtime or other hours. The workplace agreement also provides for an hourly rate of pay that is fixed and the same for both ordinary hours and overtime hours.

The employer acknowledges that it has a preference for each of its Employees to be paid their wages and conditions in accordance with the workplace agreement. They offer fixed hourly rate of pay for those employees who choose this option for all hours worked regardless of whether they are ordinary hours or overtime hours.

For those employees who are remunerated by the fixed hourly rate under the workplace agreement any hours worked in excess of the 7.6 hours per day are overtime or other hours and not considered to be ordinary hours. In addition, any wages paid to employees for work on weekends or outside of the span of working hours do not form part of OTE.

In the workplace agreement, calculations are provided for the fixed hourly rate of pay. The component of the fixed hourly rate of pay that relates to overtime is able to be expressly distinguished from other amounts used in the calculation. Therefore, the amount of pay relating to the overtime component is not required to be used when calculating the ordinary time earnings under the SGAA.