Edited version of administratively binding advice

Authorisation Number: 1012597896867

Advice

Subject: Superannuation Guarantee - 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

In accordance with the facts provided, we consider that the effect of the proposed terms of the Agreement do not alter the ordinary hours of work from being an average of 38 hours per week in a fortnight or four week period as defined in the relevant clauses of the Award.

It is therefore determined that the earnings received by an employee within the ordinary hours of work defined in the relevant clauses of the Award is 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

On or after 1 July 2013

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.

• You requested guidance in relation to calculating the ordinary hours of work for the purposes of determining the ordinary time earnings of an employee, based on a proposed amendment to the employer and employee Agreement.

• You provided a copy of a proposed amendment of an employer and employee Agreement which defines the rate of pay for ordinary hours of work and for overtime.

• The relevant Award makes provision for a variation of the overtime rates.

• The relevant Award specifies the ordinary hours of work for various classes of employees, including the provision that ordinary hours will be an average of 38 hours per week in a fortnight or four week period.

• The Agreement is proposed to vary the overtime provisions and intends to work in conjunction with the relevant Award for the purposes of determining the ordinary hours of work.

Relevant legislative provisions

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

Explanation

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

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

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.

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.

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.

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.

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'.

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.

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.

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 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 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.

In accordance with the Award, it is possible to vary the arrangements for when work is performed and to vary the overtime rates. However, based on the facts of this case, we do not consider that the proposed amendment seeks to vary the ordinary hours of work, as defined in the Award, but only seeks to vary the overtime rates as is contemplated under the relevant clause of the Award.

It is therefore 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.

Accordingly, any earnings received by an employee within the ordinary hours where specified under the relevant clauses of the Award will be considered OTE for the purposes of the SGAA.