Edited version of administratively binding advice

Authorisation Number: 1012647504783

Advice

Subject: Ordinary time earnings

Question

Does a pager allowance paid to the employees of the Employer form part of the ordinary time earnings (OTE) of the employees under the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No. Refer to 'Reasons for decision'.

This scheme commenced on:

After 1 July 2013

Relevant facts and circumstances

The Employer engages workers under a modern Award and individual employment contracts (the Contract).

The Award provides the following information:

• The Award specifies that 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.

• The Award specifies that unless otherwise stated, the ordinary hours of work will be between 6.00am and 6.00pm, Monday to Friday.

• A clause of the Award provides that employees are paid an on call allowance in respect of periods outside of the employee's ordinary hours of work.

In addition to the on call allowance, the Employer pays the employees a pager allowance.

The Employer advises:

• The pager allowance is given to workers who are required to make themselves available after normal working hours. They are contacted via a service centre to instigate employee contact with clients.

• The employees are on a rotating roster and are not required to make themselves available when on times of leave.

• The pager allowance is a separate payment from the on call allowance.

• The pager allowance is a set fee paid in relation to a number of hours the employee must be accessible via pager for technical support to clients.

• The pager allowance is for after-hours technical support.

Relevant legislative provisions

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

Reasons for decision

Summary

As the pager allowance is paid to employees as an additional allowance related solely to hours of work other than ordinary hours of work, it is not included in OTE as defined in section 6(1) of the SGAA.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its 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.

Definition of ordinary times earnings

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA and 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.

The Commissioner's views on OTE, as defined in the SGAA, including information on the difference between allowances, expense allowances and reimbursements, are contained in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) which is effective from 1 July 2009.

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 employee's '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.

Paragraph 27 of SGR 2009/2 sets out certain specific kinds of payments that are 'ordinary time earnings'. Relevantly, paragraph 27 states:

Allowances and loadings

27. Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment.

These kinds of payment are OTE except to the extent that they:

• are not 'salary or wages', for example if they are payments of a predetermined amount to offset or reimburse particular expenses (see paragraph 72 of this Ruling); or

• relate solely to hours of work other than ordinary hours of work

Paragraphs 41 to 43 of SGR 2009/2 addresses certain specific kinds of payments that are not 'ordinary time earnings' and state:

Overtime payments

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 referable to overtime hours as remuneration for overtime hours worked.

43. However, some employees, particularly some managers and professionals, receive a 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 than 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.

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.

Paragraphs 225 to 228 specify that earnings 'in respect of ordinary hours of work' means all earnings other than overtime.

Relevantly, paragraphs 225 and 226 state:

225. 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.

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' and therefore OTE. The Commissioner's view is that the expression '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 ground that they were not earned as a direct result of actually working particular hours in ordinary time.

Application of the law to the circumstances

In this case, the Employer engages workers under individual employment contracts which are underpinned by an Award.

The Award specifies that an employee's ordinary hours of work for a full-time employee are an average of 38 hours per week.

The Award specifies that an employee's ordinary hours of work for a will be worked between 6.00am and 6.00pm, Monday to Friday.

Employees are on a rotating roster.

Whilst an award or agreement may specify what an employee's ordinary hours of work are, paragraph 14 of SGR 2009/2 specifies that there needs to be a genuine distinction between ordinary hours and other hours.

Typically, other hours are referred to as overtime and it is expected that these other hours are remunerated at a higher rate than the ordinary hours, or are otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

As provided in paragraph 15 of SGR 2009/2, 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'.

As stated in paragraph 27 of SGR 2009/2 additional payments and allowances form part of an employee's OTE, except to the extent that they relate solely to hours of work other than ordinary hours of work.

In this case, the pager allowance is paid as a separate allowance to the on-call allowance, for workers to be accessible during hours outside of their ordinary hours of work.

Conclusion

The pager allowance relates solely to hours of work other than ordinary hours of work, therefore, this payment is not included in OTE for the purposes of subsection 6(1) of the SGAA.