Edited version of your written advice

Authorisation Number: 1012729712705

Advice

Subject: Superannuation guarantee liability - inclusion of allowances in ordinary time earnings (OTE)

Question

Is the allowance, as defined by the Award and paid to your employees, to be included in OTE or salary and wages, for the purpose of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

No, please refer to 'Reasons for decision'.

This advice applies for the following period<s>:

Year ended 30 June 2015 and until the expiry of the Award

The arrangement commences on:

1 July 2014

Relevant facts and circumstances

1. You employ casual employees under the Award.

2. You pay the daily allowance to the employees in accordance with the Award in recognition of the costs of mobility.

3. You do not supply the employees with any means of transport and there is no public transport available. Therefore the employees are required to use their own motor vehicles, which also carry equipment and tools used in the work.

Relevant legislative provisions

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

Reasons for decision

From 1 July 2008, all employers must use ordinary time earnings (OTE) as the earnings base to calculate the minimum super guarantee (SG) contributions required for their employees.

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 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 and the relationship between OTE and salary or wages is expressed in the following paragraphs of SGR 2009/2 as follows:

7. An amount can only be part of an employee's OTE if it is 'salary or wages' of the employee. But an employee's salary or wages may include amounts that are not OTE.

…

Meaning of 'earnings'

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'.

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. Examples:

• a 'site allowance'…

• a 'casual loading' …

• a 'dirt allowance' …and

• a 'freezer allowance' …

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…

Allowances

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.

Expense allowances and reimbursements

72. Expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'.

73. A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary or wages'.

264. An allowance can also be paid to compensate for particular working conditions, for example height, dust or danger. These types of allowances are not expended in the course of the employee's work, but rather, are paid as compensation for the conditions applying to the job.

265. Allowances of this kind are to be distinguished from expense allowances dealt with under paragraphs 72 and 266 of this Ruling.

Expense allowances

266. An expense allowance is an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services. The expense allowance is not given for the services of the employee, but rather in recognition of the expenditure that the employee will incur in the course of providing their services. As this type of allowance does not fall within the ordinary meaning of 'salary or wages', it does not form part of 'salary or wages' for the purposes of section 11. It also does not form part of an employee's OTE.

Summary

The allowance is an expense allowance, which is not salary or wages and as such does not form part of OTE as defined under subsection 6(1) of the SGAA.

Detailed reasoning

The allowance as set out in the Award recognises costs of mobility to the employee associated with the work.

You do not provide vehicles or transport to the employees. Employees are also required to transport in their own vehicles tools, equipment, and supplies to and between the premises where they perform their duties.

You have provided an example of the expenditure that an employee will incur in the course of providing their services.

As referred to in paragraph 266 of SGR 2009/2, you demonstrate the expectation that the allowance will be fully expended by the employees in the course of providing their services.

As such the allowance is an expense allowance, as referred to in paragraph 72 of SGR 2009/2, which does not fall within the ordinary meaning of salary or wages and as such does not form part of OTE.