Edited version of administratively binding advice

Authorisation Number: 1012631027875

Advice

Subject: Superannuation guarantee - Ordinary time earnings

Question

Do earnings in respect of public holidays occurring on rostered days off paid to employees under an Award form part of the employee's ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No. Please see 'Reasons for decision' below.

Relevant facts & circumstances

This advice is based on the facts stated in the description of the scheme that is set out below. If the 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 employer is seeking advice respect of the public holiday equitable payment made to employees under an Award: Does this form part of the employees OTE in relation to their SG obligations.

• The employees are engaged under an Award and work to a mutually agreed roster.

• The Award provides the following relevant information:

• Where an employee is entitled to a day off on a public holiday which is a rostered working day, they are entitled to be paid at their ordinary rate of pay for this public holiday.

• Where an employee is rostered to work on a public holiday, they receive penalty rates of double time and a half in addition to their ordinary wage for that day.

• Where a public holiday falls on an employee's rostered day off, they are entitled to an additional day's ordinary pay in relation to the public holiday.

Relevant legislative provisions

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

Reasons for decision

Summary

The earnings of the employees who are engaged under the Award in respect of public holidays occurring on rostered days off do not form part of the employees OTE as the earnings paid in respect of the Award are not in relation to their ordinary hours of work.

Detailed reasoning

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 SG charge.

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

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 2013-14 year of income is $48,040 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' (SGR2009/2).

Paragraphs 13 to 15 and 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'.

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 41 to 45 of SGR 2009/2 relate to certain specific kinds of payments that are not OTE. 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 an 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 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 that 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.

Ordinary hours of work

Appendix 2 of SGR 2009/2 provides an explanation of the legislative context applied to assist taxpayers to understand how the Commissioner's view has been reached.

In circumstances where ordinary hours are specified in an award or agreement, the Commissioner's view is that whilst it is common for awards or agreements that set out the terms and conditions of employment to make a provision for the employee's ordinary hours of work, normally hours worked in excess of ordinary hours of work attract penalty rates of pay and are described as 'overtime'. Generally a clear distinction is understood to apply for various purposes between ordinary time earnings and overtime earnings.

The Commissioner's view in relation to the expression of 'ordinary hours of work' which is contained in the definition of OTE in subsection 6(1) of the SGAA is that this expression tends to suggest a fixed or stipulated quantity of hours.

Whilst awards or agreements may have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes, the question posed by the definition of OTE in the SGAA is what amounts are earnings in respect of ordinary hours of work.

Under paragraph 14 of SGR 2009/2, the award or agreement does not need to use the exact expression 'ordinary hours of work', but the award or agreement needs to draw a genuine distinction between ordinary hours and other hours. It would be expected that other hours are remunerated at a higher rate than ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Paragraphs 25 and 26 and 226 to 228 of SGR 2009/2 provide that earnings 'in respect of ordinary hours of work' mean 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 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 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.

Paragraphs 226 to 228 state:

226. The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours of work' was intended to ensure that overtime payments, and cognate amounts, were excluded from the earnings base. It was not intended to exclude amounts paid at a worker's ordinary time rate solely on the grounds that they were not earned as a direct result of actually working particular hours in ordinary time.

227. For example, during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours.

228. Given this view, the Commissioner considers that 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. However, payments that are not considered 'salary or wages' for the purposes of the SGAA cannot be OTE.

Application of the law to the circumstances

The ordinary hours of work for employees engaged under the Award are worked in accordance with a roster.

Under the Award all employees are entitled to paid time off in respect of public holidays specified in the Award. Those employees who are not required to attend work on a public holiday that would normally be a rostered working day receive their ordinary pay.

Employees who are rostered to and attend work on a public holiday specified in the Award are entitled to be paid penalty rates.

Under the Award employees who are rostered off on any public holiday may receive either an additional day's wage, or by mutual agreement between the employee and the employer may receive an extra day's holiday in lieu.

Additionally under the Award, an employee who works in accordance with a roster and who is not rostered to work on the Saturday immediately before Easter Sunday is entitled to payment in respect of the Saturday.

Paragraph 25 of SGR 2009/2 provides that all amounts of earnings in respect of employment are in respect of an employee's ordinary hours of work unless they are remuneration for overtime hours or other hours that are not ordinary hours of work.

Paragraph 227 of SGR 2009/2 relates to earnings in respect of ordinary hours meaning all earnings other than overtime. This paragraph also addresses the issue of public holidays.

…..during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of ordinary hours of work' because it is salary or wages received at their ordinary rate of pay for a period that would normally be their ordinary working hours.

In this case, the payment received by the employees in respect of a public holiday which occurs on a rostered day off or the Saturday immediately before Easter Sunday is not paid in respect of a period which would normally be their ordinary working hours as the payment is made in respect of a public holiday which falls on the employee's rostered day off or a non-working day.

Therefore, this payment is not captured under paragraph 227 of SGR 2009/2. As the payment is made to the employees in respect of a period which would not form part of the employees ordinary working hours due to the employee not being rostered to attend work on this day, the payment does not form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the employer does not have an obligation to make SG payments in respect of the public holiday equitable payment.

Conclusion

The payment of an additional days wage made to employees in respect of those who are rostered off on public holidays do not form part of the employee's OTE. The earnings in respect of in relation to this payment are in respect of hours which do not form part of the employee's ordinary hours of work which is their rostered hours under the Award.