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Edited version of administratively binding advice
Authorisation Number: 1012633408634
Advice
Subject: Payments in lieu of notice and ordinary time earnings
Question
Are payments made for staff who voluntarily choose to receive payments in lieu of notice, as provided for in your agreement (the Agreement), ordinary times earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Advice
Yes, Please refer to 'Reasons for decision'.
The arrangement commences on:
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 employ staff under an agreement.
The Agreement allows for staff to voluntarily choose to receive payments in lieu of notice of termination of employment.
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 subsection 6(1)
ATO View documents
Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'
Reasons for decision
Detailed reasoning
From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.
The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA as follows:
ordinary time earnings, in relation to an employee, means:
(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; and …
(ii) earnings consisting of over-award payments, 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.
In broad terms (and subject to some exceptions), OTE of an employee means earnings in respect of ordinary hours of work. Payments for work performed outside the ordinary hours of work, such as overtime payments, are not OTE.
OTE is usually the amount an employee earns for their ordinary hours of work. It includes commissions, shift-loadings and some allowances, but does not include overtime payments. Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides further guidance on what constitutes OTE.
The expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression are not defined in the SGAA. The Commissioner's view on the meaning of these phrases is expressed in the following paragraphs of SGR 2009/2 as follows:
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 employee's 'ordinary hours of work'.
Paragraphs 38 of SGR 2009/2 state:
38. An employee may be entitled to a period of notice before the employer's termination of his or her employment takes effect. Awards and agreements often provide that, instead of giving this notice, the employer may simply pay an amount equivalent to the ordinary time rate of salary or wages that the employee would have earned during the notice period. Such payments are OTE.
Application to your circumstances:
In your case, the Agreement provides for payments in lieu of notice where employees voluntarily opt to waive their notice period.
As per paragraph 38 of the ruling these payments are OTE. Even though an employee can request or instigate a payment in lieu of notice, the nature of the payment is still in line with what is described in paragraph 38 of the ruling.
These payments are payments made which are equivalent to the ordinary time rate of salary or wages that the employee would have earned during the notice period and is therefore OTE. The payments are still OTE irrespective of the length of the period in lieu of notice.