Edited version of your written advice

Authorisation Number: 1012693746295

Advice

Subject: Superannuation Guarantee

Question 1

What are the ordinary hours of work of the employees engaged under an agreement for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 SGAA?

Advice

The ordinary hours of work of the employees are 40 hours per week.

Question 2

What are the ordinary time earnings (OTE) of the employees, under the agreement for superannuation guarantee (SG) purposes under subsection 6(1) of the SGAA?

Advice

The OTE are the earnings, paid at the all-inclusive rate of pay, in respect of 40 hours per week.

This advice applies:

After 1 July 2013.

Relevant facts and circumstances

The 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.

1. The employer wrote to us requesting advice in relation to their superannuation guarantee (SG) obligations. The application provided the following information:

• The employer engages workers at their worksite and also provides labour hire services offsite.

• The employees are engaged under an agreement.

• Employees are paid an all-inclusive (flat rate) of pay for every hour worked with different rates for worksite, offsite and travel.

• Employees do not have a normal time and overtime rates as such rather the flat rates are set depending on the nature of the work the employees are doing.

2. The agreement specifies the following:

• The hours of work of a full time employee are an average of 40 hours per week.

• Employees working at the worksite are rostered for a maximum of 10 hours per day, between 6.00am and 6.00pm, Monday to Friday.

• Employees working offsite are rostered for shifts of 12 hours on a two week on, two week off basis.

• Employees are paid a flat rate of pay under the agreement.

• The agreement specifies that superannuation will be paid on an earnings base of 40 hours per week at the relevant hourly flat rate of pay.

Relevant legislative provisions

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

Reasons for decision

Summary

The ordinary hours of work for the employees are 40 hours per week.

The OTE of the employees for the purposes of subsection 6(1) of the SGAA are the earnings in respect of 40 hours per week, calculated at the all-inclusive rate of pay.

Detailed reasoning

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.

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

(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 maximum contribution base for the 2014-15 year of income is $49,430 per quarter. This amount is indexed annually according to the indexation factor.

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

Paragraphs 13 to 18 of SGR 2009/2 explain the meaning of 'ordinary hours of work' and state that:

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'.

16. If the ordinary hours of work are not specified in a relevant award or agreement, 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.

17. In such cases, it may often not be possible or practicable to determine the normal, regular, usual or customary hours of an employee's work. If so, the actual hours worked to be taken to be the 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.

In accordance with its ordinary definition, overtime is regarded as work done by employees in reflex to business needs which would be expected to vary, rather than be the normal hours worked as per the work rosters.

The Commissioner's view on what earnings are taken to be made 'in respect of ordinary hours of work' is provided in paragraph of SGR 2009/2 which states:

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 employment and are not OTE because they are not in respect of any particular hours of work.

Accordingly, in line with the above, all amounts of earnings in respect of employment should be considered to be in respect of the employee's ordinary hours of work unless they are remuneration for overtime or other hours that are not ordinary hours of work.

Application of the law to your circumstances

In this case, the agreement specifies that the hours of work for a full time employee will be an average of 40 hours per week. The agreement further specifies that superannuation will be paid on an earnings base of 40 hours per week at the relevant hourly rate for the employee.

Paragraph 14 of SMSFR 2009/2 provides that the relevant award or agreement must draw a genuine distinction between ordinary hours and other hours. Furthermore, it is expected that these other hours, typically described as overtime, are remunerated at a higher rate of pay than the ordinary hours or are otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Paragraph 25 of SMSFR 2009/2 further provides that all amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remunerated for overtime hours worked.

In applying paragraph 14 of SMSFR 2009/2 to this case, the agreement specifies that the rostered hours of work are an average 40 hours per week. These hours are paid a flat rate of pay. Whilst the agreement doesn't specify the employees 'ordinary hours of work', paragraph 14 provides that the agreement does not need to use the exact expression 'ordinary hours of work'. Therefore, we consider that as the agreement specifies the employees' rostered hours as 40 hours per week, these hours are the employees 'ordinary hours of work'.

Hours in excess of 40 hours per week are considered to be 'other hours' and the earnings in respect of these 'other hours' are identifiable as a separate component of the total pay in respect of non-ordinary hours of work.

For employees who work at the employer's worksite, their ordinary hours of work are an average of 40 hours per week.

For employees who are engaged as part of the labour hire team and work offsite, their ordinary hours of work are an average of 40 hours per week for each week of the roster cycle.

For example, in the agreement, employees engaged as part of the labour hire team offsite shall work 12 hours shifts on a two week on, two week off basis, that is, 168 hours in a cycle. For each week of the roster cycle, the employees ordinary hours of work are 40 hours, ie: 4 weeks at 40 hours per week, totalling 160 hours per 4 week roster cycle.

In applying paragraph 25 of SGR 2009/2 to this case, it is considered that the average hours in excess of 40 hours per week are referrable to hours that are not ordinary hours of work and are therefore, the earnings in respect of the hours in excess of 40 hours per week are not earnings 'in respect of the employees' ordinary hours of work.

Conclusion

The agreement specifies that for employees' who work at the employer's worksite, the hours of work are an average of 40 hours per week and we consider that 40 hours per week are the employees' ordinary hours of work.

The agreement specifies, that for employees who work as part of the labour hire team offsite, the hours of work are an average of 40 hours per week for each week of the roster cycle and we consider that 40 hours per week are the employees' ordinary hours of work.

The agreement further specifies that superannuation will be paid on an earnings base of 40 hours per week. We consider that the employees ordinary time earnings for the purposes of subsection 6(1) of the SGAA are the earnings in respect of 40 hours per week, which are paid at the all-inclusive or flat rate of pay.