Edited version of your written advice

Authorisation Number: 1012696681937

Ruling

Subject: Rostered days off and ordinary time earnings

Question

Are lump sum payments made to your employees in lieu of time accrued towards rostered days off (RDOs), cashed out on termination, considered to be ordinary time earnings (OTE) under the Superannuation Guarantee (Administration) Act (SGAA)?

Answer

No. Please refer to 'Reasons for decision'.

Relevant facts and circumstances

The employees of the employer were engaged under an agreement. The agreement does not provide for RDOs.

RDOs were accrued on hours worked above the ordinary hours as defined in the agreement.

RDOs were accrued at a set rate every week.

Relevant legislative provisions

Superannuation Guarantee Administration Act 1992 Subsection 6(1)

Reasons for decision

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:

• 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 …

(j) earnings consisting of over-award payments, shift-loading or commission; or

• 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.

Paragraph 13 of SGR 2009/2 addresses the meaning of 'ordinary hours' of work and states:

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'.

Paragraph 25 and 26 of SGR 2009/2 explains what is meant by the phrase 'in respect of ordinary hours of work':

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 be 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.

Paragraph 225 and 226 which is in the explanation section of SGR 2009/2 explains:

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.

OTE and rostered days off

Paragraph 32 and 33 of SGR 2009/2 explain that RDO payments are ordinarily OTE:

32. Subject to the exclusions mentioned at paragraph 34 of this Ruling, salary or wages that an employee receives, at or below his or her normal rate of pay for ordinary hours of work, in respect of periods of paid leave is simply a continuation of his or her ordinary time pay. It is OTE. It does not matter whether the entitlement to take the paid leave accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer's discretion.

33. Similarly, salary or wages received at the ordinary time rate in respect of public holidays, rostered days off and the like is OTE.

Paragraph 36 of SGR 2009/2 explain that lump sum arrears payments of unused leave or salary or wages are OTE:

36. Lump sum arrears payments of unused leave or salary or wages otherwise than on termination of employment are also OTE.

However, whether a lump sum payment of accrued time for rostered days off is considered OTE under the SGAA depends on whether it is 'earnings in respect of ordinary hours of work'. This position applies equally to payments 'cashed out' to an employee during the course of their employment, or on their termination. The only payments made to an employee on termination of their employment that are not OTE are those made in lieu of unused sick leave, annual leave or long service leave. This is because they are expressly excluded from the definition of OTE in subsection 6(1) of the SGAA. All other leave entitlements paid out to an employee during employment or on termination are treated in the same way as ordinary leave payments.

Application to your circumstances

In this case, the agreement does not describe any RDO arrangement. However, the agreement with your employees is such that all RDO hours are accrued on hours worked in excess of the ordinary hours as described in the agreement.

This means that a lump sum payment in lieu of time accrued towards rostered days would represent an amount paid for work performed in excess of, or in addition to, an employee's normal working hours for a settlement period, and therefore would not be 'in respect of' ordinary hours of work.

Even though the amount may have been OTE when paid for an employee taking an RDO, when the amount is paid on termination it only represents an amount accrued for time worked above the ordinary hours of the employee. Therefore, such a payment to an employee would not be OTE as defined in subsection 6(1) of the SGAA.