Edited version of private advice

Authorisation Number: 1012679877159

Advice

Subject: Superannuation Guarantee

Question

Will the payment of awards paid as a voucher constitute ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer:

No, please see Reasons for decision below.

Question

Will the payment of awards paid as cash constitute ordinary time earnings (OTE) as defined in subsection 6(1) of the SGAA?

Answer:

Yes, Please see Reasons for decision below.

Question

Does the entity have an obligation under the SGAA to pay Superannuation Guarantee (SG) contributions on behalf of the individual in respect of the awards paid as cash for ordinary and overtime hours?

Answer:

Yes, Please see Reasons for decision below.

This advice applies for the following period:

1 July 2011 onwards

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 advise that the workforce operates under a wage structure covered under an enterprise agreement which specifies ordinary hours of work as 38 hours per week.

• Under its Occupational Safety and Health policy and in line with its commitment to employee safety, the entity provides periodic awards to employees when business meets its objectives with regards to the number of Lost Time Injuries which occur over a relevant period.

• The awards motivate and reward employees for maintaining focus on implementing procedures correctly and are especially important when employees are working additional hours where fatigue may become an additional consideration.

• Achievement of awards is contingent on safe work practices by employees when operating outside of the ordinary hours of work.

• The awards are typically for small amounts and are given to employees no more than four times a year.

• Currently the awards are being provided by way of vouchers to employees when the Lost Time Injuries target is met.

• The awards paid to the employees as vouchers or cash; do not form part of the entity's Enterprise Agreement.

• The entity had confirmed awards paid to employees as vouchers are specifically excluded under the FBTAA and therefore the entity does not have an obligation to pay SG on these payments.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 Section 6

Fringe Benefit Tax Assessment Act 1986 Section 40

Fringe Benefit Tax Assessment Act 1986 Section 58

Reasons for decision

Questions 1&2

Detailed reasoning

Summary

The payment of awards by vouchers to employees for ordinary hours of work and for overtime hours as vouchers, are fringe benefits. Fringe benefits are not considered to be salary or wages for SGAA purposes and not OTE as defined in subsection 6(1) of the SGAA.

As acknowledged in the facts the entity confirms that it does not have an obligation under the SGAA to make SG contributions on awards by way of vouchers for its employees.

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its employees (unless the employees are exempt employees) or they must pay the superannuation guarantee charge (SGC).

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.

Subsection 11(3) of the SGAA states that fringe benefits within the meaning of the FBTAA are excluded as salary and wages.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) provides the Commissioners view on what constitutes OTE.

This ruling confirms that an amount can only be part of an employee's OTE if it is 'salary or wages' of the employee (at paragraph 7). Of particular relevance to your circumstances is paragraph 58 which identifies that fringe benefits and other non-cash benefits are payments excluded from the definition of 'salary or wages':

Paragraph 58 of SGR 2009/2 outlines the treatment of fringe benefits and other non-cash benefits as follows:

58. Fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 (FBTAA) are excluded under subsection 11(3) of the SGAA.⁵ Additionally, the Commissioner takes the view that other 'benefits', within the meaning of the FBTAA, given by employers to employees that are neither fringe benefits nor salary or wages within the meaning of that Act are not salary or wages for SGAA purposes. For example:

• contributions made by an employer to a complying superannuation fund for the benefit of an employee (including those required to be made by the superannuation guarantee legislation itself); and

• the acquisition of a share, or of a right to acquire a share, under an employee share scheme (within the meaning of Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)),

are not salary or wages for SGAA purposes.

Application to your circumstances

As outlined in paragraph 7 of SGR 2009/2, an amount can only be part of an employee's OTE if it is "salary or wages" of the employee. Where a payment to an employee falls outside of the definition of salary or wages for SG purposes, the payment will not contribute towards the employee's OTE in calculating the employer's SG obligation.

These benefits are therefore excluded under subsection 11(3) of the SGAA and are not salary or wages for SG purposes.

Accordingly in this case, the payment of vouchers to the entity's employees for both ordinary and overtime hours of work, is not considered to be either 'salary or wages' or OTE.

Questions 2 and 3

Summary

If the employees of the entity are paid awards by way of cash, for ordinary hours of work as well as overtime hours of work, as these payments are defined as performance bonuses, they are considered 'salary and wages' and OTE under subsection 6(1) of the SGAA.

Therefore the entity has an obligation under the SGAA make SG contributions on awards by way of cash for its employees, for both ordinary hours of work as well as overtime hours of work.

Detailed reasoning

Under the SGAA an employer must provide the required minimum level of superannuation support for its employees by the quarterly due date (unless the employees are exempt employees) or pay the SGC. The minimum level of support is calculated by multiplying the charge percentage by each employee's earnings base.

Ordinary hours of work and overtime hours

The entity's Enterprise Agreement outlines ordinary hours of work and overtime hours.

Allowances

The entity's Enterprise Agreement outlines the types of allowances and does not specify awards.

Paragraph 27 of SGR 2009/2 states that:

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.

Some examples are:

• a 'site allowance' paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location;

• a 'casual loading' of 20% of the basic ordinary time rate of pay paid to a casual worker in lieu of any fixed, regular minimum hours of work and of paid leave entitlements;

• a 'dirt allowance' paid as a flat rate in acknowledgement of the conditions in which the work is undertaken; and

• a 'freezer allowance' paid at the rate of an extra $2.50 per hour to employees, such as some supermarket employees, who perform most of their duties in cold storage facilities.

Cash payment as an allowance

Paragraph 65 of SGR 2009/2 states:

65. For the purposes of the SGAA, all allowances, except expense allowances and allowances that are fringe benefits under the FBTAA, received by an employee, are included in 'salary or wages'. Expense allowances are dealt with under paragraph 72 of this Ruling.

Bonuses

Cash Bonuses

Paragraph 66 of SGR 2009/2 states:

66. A bonus is 'salary or wages' if it is paid to an employee by reason of their services as an employee and not on a personal basis. Only in those very limited cases in which the Commissioner would accept that the payment is not assessable income of the employee for income tax purposes, in respect of their employment, would the Commissioner accept that the payment is made on a personal basis and so is not salary or wages for SGAA purposes.

Bonuses and ordinary and overtime hours

Paragraphs 28 and 29 of SGR 2009/2 state:

28. Additional earnings received as a reward for good performance, and other like 'bonus' payments, are OTE in most cases. Exceptionally, a discrete and clearly identifiable bonus payment may relate solely to work performed entirely outside ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to entirely in non-ordinary hours.

29. There would need to be clear evidence that this was the sole basis for the payment. The more common case of a lump sum performance bonus that is at least partly referable to results achieved in ordinary hours of work is wholly OTE.

Bonus in respect of overtime only

Paragraphs 175 and 176 of SGR 2009/2 give an example of a bonus payment relating to overtime only. The payment is made as a reward for service provided as an employee of the company and is therefore 'salary and wages'. However it is not OTE as Paragraph 178 states:

178. ……the services which the employee provided were all identifiably performed outside of the employee's ordinary hours of work. The bonus payment is not OTE.

Application to your circumstances

As per SGR 2009/2 and stated above, a bonus is 'salary and wages' if it is paid to an employee by reason of their services as an employee.

As per the above explanations the payment of the awards to the employees of the entity by cash clearly shows that the awards are not fringe benefits or allowances and not paid on a personal basis.

Whilst it is acknowledged that the underlying nature of the awards paid by the entity by vouchers/cash is unchanged, the legislation is quite specific as to the respective treatment of the awards depending on the type of payment.

There is no evidence that the awards paid by the entity to its employees as a bonus by way of cash, is a discrete and clearly identifiable bonus payment that relates solely to work performed entirely outside ordinary hours or that it is a bonus that is paid to specifically to recognise a project performed outside of ordinary hours.

Therefore if the performance bonus is at least partly referable to results achieved in ordinary hours of work as is the case for the employees of the entity, the bonus is 'salary and wages' and would be wholly OTE.

Accordingly as the awards are a reward for services performed as an employee they can only be categorised as performance bonuses. It follows therefore this bonus must be treated as 'salary and wages' and in the absence of any other facts, the bonus is OTE.

As a consequence the entity does have an obligation under the SGAA to make superannuation guarantee contributions on behalf of its employees, in respect of awards payments in the form of cash, for both for ordinary hours and overtime hours.

ATO view documents

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2)