Edited version of administratively binding advice

Authorisation Number: 1012523354936

Advice

Subject: Superannuation guarantee and ordinary time earnings (OTE)

Question 1

Should the 'flat rate' which is proposed to be paid to employees of the employer under individual flexibility 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.

This advice applies for the following period:

For the period of operation of the Award.

Relevant facts and circumstances

The employer is considering the introduction of flexibility agreements within their workplace.

The industrial instrument that governs employee entitlements is the Award.

Under the Award OTE is stipulated as 38 hours per week.

Calculations based on the Award rates would be done to produce a flat rate which would cover up to 10 hours of overtime being worked per week.

There would be no obligation placed on the employees to work overtime, however it would be requested of them from time to time, and at times employees themselves may ask to work extra hours.

There would be allowances built into the fixed rate and other expense related allowances will be calculated separately.

The employer would enter into individual flexibility agreements with each employee.

There will be no minimum number of hours required to work i.e. just because the employer would calculate an over award payment to cover up to two hours overtime each day does not mean that we would require the employees to work those extra two hours each and every day.

Employees of the employer often complete their first six months with the company on a casual basis before conversion to full time, however they may work closer to full time hours in this period.

Work hours are generally Monday to Friday commencing the day at 7am.

Relevant extracts from the Award include definitions, provision for over award payments and flexibility to vary certain terms of the Award to meet individual needs, the types of employment and what each type of employment is, the ordinary hours of work and overtime.

Assumptions

The proposed flat 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 proposed flat rate for casual employees includes the casual loading as provided for in the Award.

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 full time employees will be thirty eight hours per week and for casual workers shall be up to thirty eight hours per week worked between 7.00am and 6.00pm, Monday to Friday.

Therefore, the ordinary hours of work for a full-time weekly hire employee who is paid the flat rate of pay are 38 hours of work in a week, worked between the span of working hours provided for in the Award. Any payment made in relation to the first 38 hours of the ordinary hours worked is OTE for the purposes of subsection 6(1) of the SGAA.

The ordinary hours of work for a casual employee who is paid the flat rate of pay are up to 38 hours of work in a week, worked between the span of working hours provided for in the Award. Payments made, including any casual loading, for up to 38 hours of the ordinary hours worked is OTE for the purposes of subsection 6(1) of the SGAA.

If an employee works more than 38 hours in any week the payments for the hours exceeding 38 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 do 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 at a rate of time and a half for the first two hours and at double time 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 flat rate, the Award does however provide that hours of work shall be thirty eight hours per week so any hours in excess of the stipulated thirty eight hours per week will be overtime or other hours.

For those employees who are remunerated by the flat rate any hours worked in excess of the 38 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 do not form part of OTE.