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Edited version of your written advice
Authorisation Number: 1012711623864
Advice
Subject: Ordinary time earnings (OTE) - superannuation guarantee liability
Question
What are the ordinary time earnings (OTE), as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992, (SGAA) of an employee employed under a Casual Employment Agreement (CEA) based on provisions of the Hospitality Industry (General) Award 2010 (HIA)?
Answer
The OTE of an employee under a CEA are the earnings in respect of the first 38 hours of each week.
This advice applies for the following period:
1 July 2014 to 30 June 2015
The arrangement commences on:
1 July 2014
Relevant facts and circumstances
Relevant clauses of the HIA are as follows:
6. The National Employment Standards and this award
The NES and this award combine to contain the minimum conditions of employment for employees covered by this award.
10. Types of employment
10.1 Employees under this award will be employed in one of the following categories:
(a) full-time;
(b) part-time; or
(c) casual.
13. Casual employment
13.1 A casual employee is an employee engaged as such and must be paid a casual loading of 25% as provided for in this award. The casual loading is paid as compensation for annual leave, personal/carer's leave, notice of termination, redundancy benefits and the other entitlements of full-time or part-time employment.
29. Ordinary hours of work
29.1 The hours of work of a full-time employee are an average of 38 per week.
32.3 Other penalty
Employees will be entitled to the following additional penalty for work performed at the following times:
(a) Monday-Friday-7.00 pm to midnight: 10% of the standard hourly rate per hour or any part of an hour for such time worked within the said hours;
(b) Monday-Friday-midnight to 7.00 am: 15% of the standard hourly rate per hour or any part of an hour for such time worked within the said hours.
33.1 Reasonable overtime
(a) Subject to clause 33.1(b) an employer may require an employee other than a casual employee to work reasonable overtime at overtime rates.
33.2 Entitlement to overtime rates
(a) A full-time employee is paid at overtime rates for any work done outside of the hours set out in clause 29-Ordinary hours of work.
(b) A part-time employee is paid at overtime rates in the circumstances specified in clause 12.7.
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 subsection 6(1)
Reasons for decision
Summary
OTE for these employees are the earnings in respect of the first 38 hours per week.
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.
From 1 July 2008, employers may still be required to use notional earnings bases specified in legislation or industrial agreements as the basis of their superannuation support in cases where these are above an employee's OTE, but SGAA obligations will only be assessed against OTE.
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:
12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.
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
Shift-loading
22. A shift-loading is an amount paid to a worker in addition to his or her basic hourly rate for having to work outside the usual span of time for day workers. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements. Often these are mutually exclusive under awards and agreements, but if an employee is entitled to a shift-loading in respect of hours other than ordinary hours of work, the Commissioner's view is that the specific inclusion of shift-loadings does not apply in that circumstance.
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.
Application of the law to your circumstances
As referred to above, OTE of an employee generally means earnings in respect of 'ordinary hours of work'. Paragraph 13 of SGR 2009/2 states that the 'ordinary hours of work' are the hours specified in an employee's relevant award or agreement , or under the combination of such documents that governs the employee's conditions of employment.
Clause 6 of the HIA indicates that the HIA and the National Employment Standards (NES) combine in respect of determining minimum conditions of employment.
The NES are found in the Fair Work Act 2009, (FWA) the provisions of which the Commissioner does not interpret. However, under paragraph 13 of SGR 2009/2, in identifying an employee's ordinary hours of work we consider the combination of documents that governs the employee's conditions of employment. As such we need to consider the content of the FWA for the purpose of assistance in determining the employee's ordinary hours of work.
Section 61 of the FWA itemises the 10 minimum standards applying to employment of employees, inclusive of the maximum weekly hours. Section 62 of the FWA provides that an employer must not request or require an employee who is not a full-time employee, to work more than the lesser of, 38 hours and the employee's ordinary hours of work in a week, unless the additional hours are reasonable.
Paragraph 25 of SGR 2009/2 provides that earnings 'otherwise referable only to overtime or to other hours that are not ordinary hours of work' will not form part of an employee's ordinary hours of work.
By including the reference in paragraph 25 of SGR 2009/2 to 'or to other hours that are not ordinary hours' in addition to the reference to overtime, SGR 2009/2 acknowledges that not all non-ordinary hours will be referred to as overtime hours, or will be paid at higher rates.
Accordingly, for the workers who ordinarily work 70 hours per week, the lesser amount is 38 hours, so any hours worked in excess of 38 hours are viewed as 'additional' hours under the NES.
You advise that you pay a loading to some employees for working 7.00 pm to midnight and midnight to 7.00am from Monday to Friday, and Saturday and Sunday. Workers may be paid different rates dependant on the times and days worked.
For these employees, the ordinary hours will be the first 38 hours worked in a week, however under paragraph 22 of SGR 2009/2, if part of the 38 hours includes hours for which shift loadings are paid, then these hours will also form part of ordinary hours. It follows that hours worked beyond the 38th hour, regardless of whether those hours are paid at a flat rate or a loaded rate, will not form part of the ordinary hours for these employees.
Accordingly, the OTE for these employees are the earnings in respect of the first 38 hours of the week, inclusive of hours for which shift loadings are paid.