Edited version of administratively binding advice

Authorisation Number: 1012519944884

Advice

Subject: Superannuation guarantee obligations

Question

Do earnings in respect of overtime hours of casual employees of the Employer, as identified under Appendix A to the Agreement, form part of the employee's ordinary time earnings for superannuation guarantee purposes?

Advice

No. Refer to 'Reasons for decision'

This advice applies for the following period:

31 July 2012 - 31 July 2014

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 Commissioner received an application for advice from the Employer concerning their superannuation guarantee obligations in relation to casual employees. The application provided the following information:

· The Employer provides recruitment and labour service solutions to clients.

· The Employer has less than 500 casual employees who are engaged in seasonal work.

· Employees are engaged under an employment agreement (the Agreement) which provides the following information:

Conditions of Employment

An Employee may be engaged as a:

(a) Permanent (full time or part time) employee;

(b) Casual employee; or

(c) Pieceworker.

A casual Employee is an employee engaged by the hour. A casual Employee has no entitlement to annual leave, paid personal leave or any other form of leave unless provided for in the Fair Work Act 2009 (Cth). Each engagement is separate and constitutes a new contract of employment

Ordinary hours of work - Casual Employees

The ordinary hours for a casual Employee shall not exceed 38 hours in any given week.

A maximum of 8 hours per day may be worked on any one day however, by agreement with the employee concerned this can be extended to ten (10) hours. The minimum ordinary hours for any rostered shift will be two hours

Ordinary hours may be worked within a spread between 6:00am and 6:00pm …… inclusive of meal breaks, Monday to Friday inclusive provided that where an Employee makes a request and the Employer agrees, the days on which the ordinary hours are worked may include Saturday and Sunday. Only Employees who are listed in Appendix A can make such a request.

The spread of hours provided for above may, by mutual agreement between the Employer and the Employee(s) concerned, be varied to any other such times as the Employer and the Employee(s) may agree provided that any such spread of hours will not exceed a spread of more than 12 hours.

Rates of pay

A subclause of the agreement sets out the minimum hourly rates of pay for ordinary hours of work at specified levels.

Overtime

The Employer may request that an Employee performs a reasonable amount of overtime. All time worked in excess of the ordinary hours or outside the spread of hours as defined in clauses of the Agreement will be deemed overtime.

All overtime will be paid for at the rate of double time.

Notwithstanding the above overtime clauses, an Employee may voluntarily agree to perform overtime. If such Employee agrees to voluntarily perform overtime then they will be paid at the rates provided for in the Rates of pay clause of this Agreement. This clause only applies to the category of Employees listed in Appendix A.

Appendix A

The operation of the voluntary hours provisions in this Agreement is only available to Employees who can establish a genuine need and are engaged in businesses of clients of the Employer which are seasonal in nature or are subject to seasonal fluctuations and their terms and conditions of employment are underpinned by specific industrial awards.

· Approximately 90% of the Employer's casual employees work some additional hours (i.e.in addition to the 38 hours each week) on a voluntary basis during the seasonal period. In accordance with Agreement, wages paid by the Employer in respect of these additional overtime hours worked by its casual employees are paid at ordinary hourly rates, rather than at overtime rates or any other loadings being applied, though are specified as overtime hours.

Your contentions

You contend that the Agreement clearly sets out the 'ordinary' hours (as opposed to merely the maximum number of hours) for a casual employee in the present case. Only such hours should be considered to fall within the expression 'ordinary hours of work' for the purposes OTE.

You further contend that as approved by the FWA, the agreement to work additional voluntary hours in the exceptional circumstances is not contrary to the public interest and it was approved by FWA that the Employer could forgo penalty rates for the overtime work.

On this basis, you believe that the Employer does not have any SG obligations in respect of overtime hours worked voluntarily by its casual employees during seasonal periods. In this respect, the seasonal periods do not ordinarily cover more than five weeks in a calendar year.

In addition, the Employer's facts and circumstances can be contrasted with Example 3 contained in SGR 2009/2 whereby an employee has agreed to work certain additional hours on an ongoing weekly basis (and therefore form part of his agreement), and as such are considered to be OTE for SG purposes.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Subsection 6(1).

Reasons for decision

Summary

The earnings in respect of overtime hours of casual employees of the Employer, as identified under Appendix A to the Agreement, do not form part of the employee's ordinary time earnings for superannuation guarantee purposes.

Detailed reasoning

The Superannuation Guarantee (Administration) Act 1992 (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 percentage (currently 9% and increasing to 9.25% for the period 1 July 2013 to 30 June 2014).

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

Some employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.

Ordinary time earnings

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

(a) the total of the employee's earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission, but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or

(b) the maximum contribution base for the quarter - the maximum contribution base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. The maximum contribution base for the 2011/12 year of income is $43,820 per quarter. This amount is indexed annually according to the indexation factor.

The Commissioner's views on OTE generally, including an employee's ordinary hours of work, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Paragraphs 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state:

13. 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.

14. 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.

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

16. 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.

17. In such cases, it may often not be possible or practicable to determine the 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.

18. 'Ordinary hours of work' are not necessarily limited to hours to be worked between 9am and 5pm, Monday to Friday. They may (depending on the provision in the relevant award or agreement, if any) include hours to be worked at other times, including at night, on weekends or on public holidays.

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

Paragraphs 25 and 26 of SGR 2009/2 state:

25. 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 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 be 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 ruling identifies certain specific kinds of payments that are not 'ordinary time earnings'. Paragraphs 41 to 43 relate to overtime payments and state:

41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.

42. This is so whether the payments are calculated at an hourly rate or the employee gets a specific loading, or annualised or lump sum component of a total salary package, that is expressly referrable to overtime hours as remuneration for overtime hours worked.

43. However, some employees, particularly some managers and professionals, receive a single undissected annual salary within a remuneration package that recognises in a non-specific way that the employee may often be expected to work more than the ordinary hours of work prescribed. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable as mentioned in paragraph 42 of this Ruling.

Appendix 2 of SGR 2009/2 is provided as information to help taxpayers understand how the Commissioner's view has been reached.

Paragraphs 189 to 202 of SGR 2009/2, which are included in Appendix 2 relate to the situation where ordinary hours of work are specified in an award or agreement. Paragraphs 189 to 202 state:

189. It is common for awards and agreements that govern the terms and conditions of a worker's employment to make provision for the ordinary hours of work of the worker. Normally, hours worked in excess of the ordinary hours of work attract penalty rates of pay and are described as 'overtime'. In general, a clear distinction is understood to apply for various purposes between ordinary time earnings and overtime earnings.

190. The definition of 'OTE' in the SGAA uses the expression 'ordinary hours of work' without defining it. On one view, the expression should be interpreted according to the general English dictionary meanings of those terms. In particular 'ordinary' could be read as meaning regular, customary or usual; as opposed to meaning normal in the sense of stipulated by some fixed standard, or norm. On this view, a worker's ordinary hours would not necessarily be the hours specified in any award or formal agreement as their ordinary hours, if in fact he or she ordinarily worked a greater number of hours.

191. However, another view is that Parliament consciously chose the expression 'ordinary hours of work' in framing the SGAA in 1992 knowing that it had a specialised and well-established meaning in the particular context of the Australian industrial relations system, and intended that the interpretation of the expression be informed by that context.

192. The Commissioner accepts that this second view is the correct view. Although the general English meaning of the adjective 'ordinary' is sufficiently wide to admit of either interpretation, the context and history of the SGAA, as well as practical considerations, point sufficiently strongly to the latter reading in the Commissioner's view.

193. The precise text of the expression in the definition supports this view. The expression 'ordinary hours of work' tends to suggest a fixed or stipulated quantity. It does not aptly describe an individual's actual work-patterns from time to time. A phrase like 'earnings in respect of hours that the employee ordinarily works' would have been a more natural way to denote actual working patterns.

194. There is evidently a relationship between the SGAA and the legal concepts making up the Australian industrial relations system. As originally enacted, the SGAA made a number of express references to features of the then industrial relations system. Also, some other references only make sense if understood in light of relevant industrial instruments; for example, the reference to 'over-award payments' later in the OTE definition. These express references support the view that the framers of the SGAA had in mind that 'ordinary hours of work', being a term commonly used in awards at the time, might be understood as taking its meaning from awards and industrial agreements.

195. The Explanatory Memorandum for the Taxation Laws Amendment Bill (No. 4) 1993, a Bill that proposed to amend the OTE definition, stated that the principal reason for adopting ordinary time earnings as a default earnings base was to achieve consistency with the award superannuation system.

196. No court decision directly settles this question. However, the High Court considered similar arguments, in a related but technically distinguishable context, in Australian Communication Exchange Ltd v. Deputy Commissioner of Taxation (ACE). This case was about the proper interpretation of a particular award for the purposes of the now repealed SGAA provisions about notional earnings bases. The question was what, under the award concerned, were the ordinary hours of work of casual workers many of whose hours might have regularly occurred outside a specified bandwidth of ordinary hours.

197. Strictly speaking the High Court was solely concerned with the drafting of the particular award in question rather than the definition of OTE in the SGAA. The significance of the case for present purposes is as follows.

198. For the reasons given above, the Commissioner accepts that, at least in general, the expression 'ordinary hours of work' in the SGAA definition of OTE is intended to refer to the ordinary hours as defined by the relevant award or agreement. It could be questioned whether this was intended even where a worker would therefore get minimal mandatory superannuation support because most of their actual or regular hours worked are outside the specified bandwidth of ordinary hours and thus attract overtime penalty rates. Moreover if all actual or regular hours for a given quarter are worked outside the bandwidth, the SGAA seems to operate in an odd way. In that situation, the employer apparently could not reduce its individual superannuation guarantee shortfall at all, but must instead incur a liability to pay superannuation guarantee charge to the Commissioner in respect of the full amount of salary or wages paid, including all of the overtime payments.

199. A majority of the High Court rejected arguments of this kind in the context of the Award at issue in ACE, recognising that the SGAA deferred to the particular Award in this respect and that such instruments may merely represent the results of wider compromises. In the same way, the Commissioner recognises that the OTE definition defers generally to awards and agreements in this respect. It therefore seems likely that the courts would reject any arguments for an exception from the general principle of deference to awards and agreements based on a perceived general policy intention that all workers must receive a substantial level of superannuation support.

200. A number of cases have dealt with similar expressions as they were used in certain State workers' compensation legislation in various contexts. In Kezich v. Leighton Contractors Pty Ltd, the High Court found that the expression 'the ordinary hours [the worker] would have worked' referred to his or her regular, usual, customary or normal hours. On the other hand, in the more recent case of Catlow v. Accident Compensation Commission, the High Court interpreted the expression 'the worker's normal number hours per week' as referring to the nominal number as set out in the relevant industrial agreement, as opposed to the actual number of hours (including overtime hours) that the worker had informally agreed with his employer routinely to work. None of these cases is quite decisive of the issue for SGAA purposes. No unifying principle emerges. Much appears to depend on the precise statutory context in question.

201. The Commissioner recognises that to take the view that, even if only in limited cases, an employee's 'ordinary hours of work' would be his or her regular, usual, customary or normal hours, where these were greater than the nominal ordinary hours under an award or agreement, would impose a significant compliance burden for many employers who have large numbers of staff working at least some overtime hours. It is also difficult to state, in a way that creates adequate certainty for self-assessment purposes in many actual practical cases, what precisely is meant by a concept such as regular, usual, customary or normal hours of work.

202. An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the 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 be a different amount from any purported amount of 'ordinary time earnings' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that the ordinary hours or 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.

Application of the law to your circumstances

In your case you employ casual workers under an Agreement.

The workers are engaged to work in the businesses of clients of the Employer.

The nature of the work is seasonal and the seasonal period generally spans for up to five weeks per year.

The Agreement provides that casual workers are engaged by the hour and their ordinary hours of work are 38 hours per week.

The Agreement further provides that employees may voluntarily agree to perform overtime.

You have advised that approximately 90% of casual employees work some additional hours (i.e. in addition to the 38 ordinary hours per week) on a voluntary basis during the seasonal period.

A clause of the Agreement relates to overtime and provides that all time worked in excess of the ordinary hours, or outside the spread of hours, will be deemed overtime. Furthermore, an Employee may voluntarily agree to work overtime and those employees who may voluntarily agree to work overtime are identified in Appendix A of the Agreement.

Appendix A provides that the operation of the voluntary hours provisions is only available to employees who can establish a genuine need and are employed to provide services to clients of the Employer who are in businesses which are seasonal in nature or whose business are subject to seasonal fluctuations.

When employees who are captured under Appendix A to the Agreement voluntarily work overtime, they are paid at their ordinary hours rate of pay as specified in the 'Rates of pay' clause of the Agreement, without receiving any overtime loading. Therefore all hours of work, be it ordinary hours or overtime hours are paid at the same rate of pay.

Paragraphs 14 and 189 of SGR 2009/2 both provide that an award or agreement needs to draw a genuine distinction between ordinary hours and other hours. It is expected that other hours are remunerated at a higher rate than the ordinary hours, or are otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Paragraphs 41 and 42 of SGR 2009/2 provide that payments for work performed outside an employee's ordinary hours of work are not OTE and this is so whether the payments are calculated at an hourly rate or the employee gets a specific loading and this applies where the payment is expressly referrable to overtime hours as remuneration for overtime hours worked.

In this case the 'other hours' or overtime hours are not remunerated at a higher rate than the ordinary hours. Notwithstanding this, the Agreement does draw a genuine distinction between ordinary hours and other hours of work for the casual employees as it specifies that the ordinary hours of work for a casual employee are 38 hours per week and that all time worked in excess of ordinary hours will be deemed overtime.

Appendix 1 of SGR 2009/2 provides examples to help taxpayers understand how the Commissioner's view has been reached.

Examples 2, 3 and 4 of SGR 2009/2 relate to overtime and OTE. Example 2 relates to ordinary hours of work and overtime hours which are determined by an agreement prevailing over an award and states:

87. Ennio is employed under a collective agreement which incorporates by reference terms from an award. To the extent of any inconsistency between the agreement and the award, the agreement prevails.

88. The award provides that the ordinary hours are an average of 38 hours per week and gives an employer the right to require an employee to work reasonable overtime.

89. However, the agreement provides for a shift roster which requires that employees work an average of 44 hours per week and identifies on the roster the ordinary hours of work as 40 hours (all paid at a particular hourly rate) and the overtime hours as 4 hours (to attract a penalty rate of pay in addition to the ordinary hourly rate).

Salary or wages

90. The payment for Ennio's 44 hours of work is a reward for services provided as an employee of the company and is therefore 'salary or wages'.

OTE

91. As the agreement requires Ennio to work an average of 40 'ordinary' hours per week, these are his 'ordinary hours of work'. Therefore, the payment to Ennio for 40 hours of work is 'earnings in respect of ordinary hours of work' and is OTE.

92. The payment for the additional 4 hours of rostered overtime is not 'earnings in respect of ordinary hours of work' and is therefore not included in OTE.

This example is dissimilar to the situation of the casual employees of the Employer as the Agreement does not give the Employer the right to require an employee to work reasonable overtime. The casual employees of the Employer voluntarily agree to work overtime.

Furthermore, the Agreement does not require casual employees to work more hours than the standard of 38 hours per week which is customary for modern awards and clearly specifies that all hours worked in excess of the ordinary hours will be deemed overtime.

Therefore, this example does not apply to your circumstances.

Example 3 relates to an agreement supplanting an award that removes the distinction between ordinary hours and other hours. Example 3 states:

93. Cliff was employed under an award which stipulates that ordinary hours shall not exceed a maximum of 38 hours per week. The award also states that all time worked in excess of the ordinary hours shall be deemed to be overtime and paid at a rate of time-and-a-half for the first three hours and double time thereafter.

94. However, Cliff and his employer agree under a workplace agreement that he will work 50 hours each week which will be paid at the same hourly rate for all of the 50 hours worked. That rate is inclusive of all allowances and penalties. No lesser amount of hours is identified as 'ordinary', nor is separate provision made for any overtime rate of pay.

95. Cliff duly works his 50 hours per week and is paid at the appropriate single rate under the agreement.

Salary or wages

96. The payment to Cliff for the 50 hours worked is a reward for the services he is providing and is therefore 'salary or wages'.

OTE

97. Under the terms of the agreement (which overrides the terms of the award to the extent of any inconsistency), no distinction is made between any of the hours Cliff works, nor is any component of his pay separately identifiable as overtime. Therefore Cliff's ordinary hours of work for superannuation guarantee purposes are 50 hours per week.

98. Therefore each whole payment to Cliff for 50 hours of work is 'earnings in respect of ordinary hours of work' and is OTE.

This example is again dissimilar to the situation of casual employees of the Employer as the Agreement does not remove the distinction between ordinary hours and other hours, nor does it require the additional hours to be worked on an ongoing weekly basis.

In your case whilst the overtime hours are paid at the same rate as ordinary hours rate of pay, a clear distinction is evident in that the ordinary hours are clearly specified in the Agreement as 38 hours per week. Furthermore, the voluntary overtime hours only apply to seasonal periods of approximately five weeks per year and it is clearly defined that all time worked in excess of the ordinary hours will be deemed overtime.

Therefore, this example does not apply to your circumstances.

Example 4 relates to the situation where no ordinary hours of work are stipulated and states:

99. Kim is employed under a contract requiring her to work a minimum number of hours per week in a call centre. By agreement between her and the employer, she may work additional shifts as is mutually convenient. She often does so, though there is no clear and consistent pattern to this.

100. There is no award or agreement governing Kim's employment that specifies her ordinary hours of work, nor do the extra shifts worked attract any overtime penalties or other higher payments.

Salary or wages

101. All wage payments made to Kim are a reward for services she provides as an employee and are therefore 'salary or wages'.

OTE

102. As there are no stipulated ordinary hours of work, and no readily discernible pattern of customary, regular, normal or usual hours, all of Kim's hours actually worked are ordinary hours of work. Therefore all of her wages are OTE.

This example is again dissimilar to your circumstances as the agreement clearly specifies the ordinary hours of work as 38 hours per week and therefore does not apply to your circumstances.

Conclusion

Your situation is a unique situation in that whilst your casual employees may voluntarily agree to work overtime during the seasonal period, they are not remunerated at a higher rate for these overtime hours which is the expected norm.

This provision of the Agreement is only applicable for the duration of the seasonal period, which you advise is approximately five weeks per year.

Notwithstanding this, the Agreement clearly specifies that the ordinary hours of work for casual employees are 38 hours per week. Furthermore, the Agreement clearly specifies that all time worked in excess of the ordinary hours will be deemed overtime.

Therefore the Agreement provides a clear distinction between ordinary hours of work and overtime hours.

While these overtime hours are not remunerated at a higher rate, nor is there any loading, the earnings in respect of overtime hours of casual employees of the Employer, as identified under Appendix A to the Agreement, do not form part of the employee's ordinary time earnings for superannuation guarantee purposes.