Edited version of administratively binding advice

Authorisation Number: 1012518647637

Advice

Subject: Superannuation guarantee - ordinary time earnings (OTE)

Question 1

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

Advice:

Yes, please see 'Explanation' below.

Question 2

If an employee works more than the agreed ordinary hours in any week, 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.

Advice:

No, wages paid to an employee for work in excess of the agreed 40 hours per week (between 7.00 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 (7am 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.

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.

· Employees are paid based on the Award.

· 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 Award 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.

· 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 Award covers all employment matters. The Award 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'.

The ordinary hours of work are specified in the Award. Under the terms of the Award, ordinary work hours for employees shall be up to thirty eight hours per week. The Award provides for alternative methods of arranging ordinary hours and RDO's including the substitution of RDO and the arrangement of ordinary hours which exceed eight hours on any day. Employees paid the fixed hourly rate are to work 40 hours per week and 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.

Therefore, the ordinary hours of work for an employee who is paid the fixed hourly rate of pay for superannuation guarantee purposes are 40 hours of work in a week, worked between 7.00 am and 6.00 pm Monday to Friday.

If an employee works more than 40 hours in any week the payments for the hours exceeding 40 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 on weekends or outside of the span of working hours (7am to 6pm Monday to Friday) do not form part of OTE.

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 Award would not be paid to employees if they were to lose time due to inclement weather and work less than a 40 hour week. Payment under the fixed hourly rate will only be made for the actual hours worked.

If an employee is unable to work a full 40 hour week 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 40 hours in a week 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 40 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 Award specifies that all time worked beyond the ordinary hours of work will be paid for at the rate of 150% for the first two hours and 200% thereafter.There is no provision in the Award for, or in relation to, overtime hours for those employees who have elected to be remunerated by the fixed hourly rate, the Award does however provide that hours of work shall be thirty eight hours per week which may be subject to change by agreement as provided for in the Award. In your case the ordinary hours of work has been changed to include 0.4 hours a day (2 hours per week) in lieu of a RDO. Any hours in excess of the agreed forty hours per week will be overtime or other hours.

For those employees who are remunerated by the 'all-in' rate any hours worked in excess of the 40 hours per week 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 (7am to 6pm Monday to Friday) do not form part of OTE.