Edited version of administratively binding advice

Authorisation Number: 1012586783382

Advice

Subject: SG - ordinary time earnings

Question

Will the proposed terms to be included in clause x of the Agreement determine your employee's ordinary hours of work to be 38 hours per week, for the purposes of determining an employee's ordinary time earnings (OTE) under the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Yes, the particular proposed amended term to clause x of the Agreement will determine that the earnings for 38 hours per week are an employee's ordinary time earnings:

In effect, the terms of the Agreement do not actually vary the ordinary hours of work for an employee as provided for under the Award but varies the rate of pay for the overtime hours, as allowed under the Award.

The bandwidth of hours specified in the Award are stated as follows:

Unless otherwise stated, the ordinary hours of work for a day worker will be worked between 6.00am am 6.00pm Monday to Friday.

As the Agreement specifies the term of the Award is varying, we accept that it complies with the Award Flexibility provisions in the Award, and can therefore be relied upon for the purposes of the SGAA.

It is therefore only the income received by the employees for 38 hours per week as worked within the bandwidth specified under the Award that is determined as being included in their OTE for the purposes of the SGAA.

Please see 'Explanation' below for our reasons for this advice.

This advice applies for the following period:

1 July 2013 to 30 June 2015.

The arrangement commences on:

During income year 2013 -2014

Relevant facts and circumstances

1. An ABA was issued to you previously to advise that all earnings from the hours worked under the Agreement are OTE for the purposes of the SGAA.

2. You requested a review of the advice and presented an alternate clause x of the Agreement in relation to the ordinary hours of work.

3. The relevant provisions of the Award are:

Award flexibility

A. Notwithstanding any other provision of this award, an employer and an individual employee may agree to vary the application of certain terms of this award to meet the genuine individual needs of the employer and the individual employee. The terms the employer and the individual employee may agree to vary the application of are those concerning:

(a) arrangements for when work is performed;

(b) overtime rates;

(c) penalty rates;

(d) allowances; and

(e) leave loading.

B. The employer and the individual employee must have genuinely made the agreement without coercion or duress. An agreement under this clause can only be entered into after the individual employee has commenced employment with the employer.

C. The agreement between the employer and the individual employee must:

(a) be confined to a variation in the application of one or more of the terms listed in

clause A; and

(b) result in the employee being better off overall at the time the agreement is made than the employee would have been if no individual flexibility agreement had been agreed to.

D. The agreement between the employer and the individual employee must also:

(a) be in writing, name the parties to the agreement and be signed by the employer and the individual employee and, if the employee is under 18 years of age, the employee's parent or guardian;

(b) state each term of this award that the employer and the individual employee have agreed to vary;

(c) detail how the application of each term has been varied by agreement between the employer and the individual employee;

(d) detail how the agreement results in the individual employee being better off overall in relation to the individual employee's terms and conditions of employment; and

(e) state the date the agreement commences to operate.

E. The right to make an agreement pursuant to this clause is in addition to, and is not intended to otherwise affect, any provision for an agreement between an employer and an individual employee contained in any other term of this award.

Ordinary hours of work

A. The ordinary hours of work for a full-time employee will be an average of 38 hours per week in a fortnight or four week period.

B. Not more than 10 ordinary hours of work (exclusive of meal breaks) are to be worked in any one day.

Span of hours

Unless otherwise stated, the ordinary hours of work for a day worker will be worked between 6.00am and 6.00pm Monday to Friday.

Overtime rates

a. An employee who works outside their ordinary hours on any day will be paid at the rate

b. of:

1. time and a half for the first two hours; and

2. double time thereafter.

c. All overtime worked on a Sunday will be paid at the rate of double time.

d. These extra rates will be in substitution for and not cumulative upon the shift loading prescribed in clause 29-Shiftwork.

e. Part-time employees Where agreement has been reached in accordance with clauses 10.3(b) or (c),a part-time employee who is required by the employer to work in excess of those agreed hours must be paid overtime in accordance with this clause.

4. You submitted a particular proposed amendment to clause x of the Agreement..

Relevant legislative provisions

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

Reasons for decision

Summary

6. In accordance with the facts provided, we consider that the effect of the proposed amendment to clause x of the Agreement, in conjunction with the relevant clauses of the Award, the ordinary hours of work would be defined as any variation of hours between the span of 6.00am and 6.00pm Monday to Friday, as long as they do not exceed 38 hours in a week.

7. Accordingly, any earnings received by an employee within these hours will be considered to be OTE for the purposes of the SGAA.

Detailed reasoning

8. 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

(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.

9. The Commissioner's current view on what represents OTE is contained in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2). This ruling explains the meaning of OTE as defined in subsection 6(1) of the SGAA.

10. 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?

11. 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.

12. As discussed in paragraph 14 of SGR 2009/2, 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.

13. 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'.

14. If the ordinary hours of work are not specified in a relevant award or agreement, paragraph 16 of SGR 2009/2 explains that 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.

15. 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.

16. 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.

17. The particular proposed amendment to clause x of the Agreement provides a variance of hours. This variance is made in accordance with the Award which allows only the following conditions to be varied:

(a) arrangements for when work is performed;

(b) overtime rates;

(c) penalty rates;

(d) allowances; and

(e) leave loading.

18. In accordance with the Award, we consider it may be possible to vary the hours (arrangements) for when work is performed and to vary the overtime rates under the Award.

19. In the copy provided of the current Agreement, the ordinary hours of work are not specified, but indicate an intention to vary the rate of pay to $x for all hours worked, which is shown in a spreadsheet as being X hours per week. It may therefore be construed that the Agreement is varying the terms in accordance with the Award. Accordingly, in this instance it can be considered that the ordinary hours of work have been varied to X hours per week, as there is no longer any distinction between ordinary hours and overtime hours.

20. Arguably the ordinary hours could be varied to any amount agreed upon by the employer and employee because no specific hours are documented in the Agreement. The hours are only referred to in a spreadsheet, which is provided as a comparison document to demonstrate the employee is better off, in accordance with the requirements specified in the Award.

21. However, based on the facts provided, we consider that the proposed amendment to clause x of the Agreement does not seek to vary the ordinary hours of work which are specified in the Award, but seeks only to vary the overtime rates as is contemplated in the specified clause of the Award.

22. The Commissioner's view is that there must be a genuine distinction between ordinary hours and overtime hours, which is typically differentiated by a higher rate of pay for overtime hours. However, paragraph 14 of SGR 2009/2 also notes that overtime may be otherwise identified as a separate component of the pay, if not distinguishable by the rate of pay.

23. It is our view that the proposed amendment to the Agreement distinctly distinguishes the ordinary hours of work from the overtime hours regardless of the rate of pay being given for those respective hours.

Conclusion

24. In accordance with the facts provided, we consider that the effect of the proposed amendment to clause x of the Agreement, in conjunction with the relevant clauses of the Award, the ordinary hours of work would be defined as any variation of hours between the span of 6.00am and 6.00pm Monday to Friday, as long as they do not exceed 38 hours in a week.

25. Accordingly, any earnings received by an employee within these hours will be considered to be OTE for the purposes of the SGAA.