Edited version of your written advice

Authorisation Number: 1012730096709

Advice

Subject: Superannuation Guarantee - Ordinary Time Earnings

Question 1

Do earnings in respect of day shifts worked by employees under the Award form part of their ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice: Yes. Please see 'Reasons for decision' below.

Question 2

Do earnings in respect of night shifts worked by employees under the Award form part of their OTE for the purposes of subsection 6(1) of the SGAA?

Advice: Yes. Please see 'Reasons for decision' below.

Question 3

Do earnings in respect of weekend shifts worked by employees under the Award form part of their OTE for the purposes of subsection 6(1) of the SGAA?

Advice: Yes. Please see 'Reasons for decision' below.

Question 4

Do earnings in respect of a casual loading on shifts worked by employees under the Award form part of their OTE for the purposes of subsection 6(1) of the SGAA?

Advice: Yes. Please see 'Reasons for decision' below.

Question 5

Do earnings in respect of a split shift loading paid to employees under the Award form part of their OTE for the purposes of subsection 6(1) of the SGAA?

Advice: Yes. Please see 'Reasons for decision' below.

This ruling applies for the following period

Year ended 30 June 2014

Year ended 30 June 2015

This ruling is binding on the Commissioner for the period outlined in the ruling. You may rely on this ruling for other years where the facts, as stated in the ruling do not change, but the Commissioner will not be bound to the ruling. This means that if your circumstances or the facts relied upon to make the ruling do change, you will be protected from penalties and interest, but liable for any shortfall tax that may apply.

Relevant facts and circumstances

We received a request from on behalf of the Employer for a private ruling regarding superannuation guarantee (SG) obligations.

The request provided the following information:

• The Employer operates a 24 hour business.

• The Employer engages staff under the Award.

• The Award states that ordinary hours may be worked between 6.00am and 6.00pm, Monday to Friday inclusive.

• A 15% shift loading is paid to employees when working night shifts.

• Penalty rates are paid at a 50% loading of the ordinary base rate of pay on Saturdays and 100% loading of the ordinary base rate of pay on Sundays.

• The 15% night shift loading is not paid where employees receive a weekend penalty rate.

• Casual employees do not receive casual loading when they receive a weekend penalty rate.

The following further information was also provided:

• Approximately half of the staff are full time employees. The remaining staff are casual employees.

• All staff are employed under the Award- there are no separate agreements in place.

• Both the full time and casual rosters are made up of two 12 hour shifts. These consist of day shifts (6.00am-6.00pm) and night shifts (6.00pm-6.00am).

• Night shifts worked between Monday and midnight Friday receive a 15% shift loading.

• Casual employees receive a 25% casual loading for hours worked Monday to midnight Friday.

• Some casual employees are required to work a split shift. The Employer pays a 15% loading on the afternoon shift in recognition of these employees working split shifts.

The Award states that the ordinary hours of work are a maximum of eight hours per day worked between 6.00am and 6.00pm, Monday to Friday inclusive.

The Award also provides that an employer and employee may enter into a Flexibility Arrangement to vary the terms of the Award with respect to ordinary hours of work, overtime rates, penalty rates, allowances and leave loading.

The Employer engages all employees under a Flexibility Agreement. The Flexibility Agreement provides that:

• up to 12 ordinary hours can be worked per day, Monday to Sunday inclusive;

• the Employees' maximum ordinary hours per week will be 38 hours per week, averaged over a period of 6 weeks;

• hours worked during Monday to Friday will not be paid at overtime rates;

• hours worked on Saturday or Sunday will be paid at the relevant penalty rate as per the Award.

Relevant legislative provisions

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

Reasons for decision

Summary

Earnings of employees engaged by the Employer under the Agreement in respect of:

• day shifts;

• night shifts;

• weekend shifts;

• casual loading; and

• split shift loading

form part of the employees' OTE as these earnings are in relation to the employees' ordinary hours of work.

Detailed reasoning

All employers are required to provide a minimum level of superannuation support for their eligible employees by the SG period due date. From 1 July 2008, employers must use OTE as the earning base to calculate the minimum SG contributions required for employees.

Ordinary time earnings

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and is the lesser of:

(a) the total of the employee's earnings in respect of ordinary hours of work and earnings consisting of over award payments, shift loading or commission, but does not include lump sum payments made on termination of employment in lieu of unused sick leave, unused annual leave and unused long service leave; or

(b) the maximum contribution base for the quarter - the maximum contribution base, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee. The maximum contribution base for the 2013-14 year of income is $48,040 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) sets out the Commissioner's views on the meaning of OTE.

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

Meaning of 'ordinary hours of work'

13. An employee's 'ordinary hours of work' are the hours specified in his or her ordinary hours of work under the relevant award or agreement, or under a 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'.

…

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 your case, the ordinary hours of work are specified under the Award as a maximum of eight hours per day worked between 6.00am and 6.00pm, Monday to Friday inclusive.

However, the Award provides that an employer and an individual employee may agree to vary the application of certain terms of the Award, including arrangements for when work is performed, in order to meet the genuine individual needs of the employer and the individual employee.

In your case, the Employer has entered into a Flexibility Arrangement with all employees which varies the ordinary hours of work, as permitted by the Award. The Flexibility Arrangement varies the ordinary hours of work under the Award as follows:

(a) The Employer and the Employees agree that up to 12 ordinary hours can be worked per day, Monday to Sunday inclusive.

(b) The Employees' maximum ordinary hours per week will be 38 hours per week, averaged over a period of 6 weeks.

Therefore the 'ordinary hours of work' for employees in your case is defined by the Flexibility Arrangement. Up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work. An employee's maximum ordinary hours of work will be 38 hours per week, averaged over a six week period.

Question 1

Day shifts

The Employer rosters its employees to work 12 hour day shifts from 6.00am to 6.00pm.

The Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work.

The Flexibility Arrangement provides that hours worked during Monday to Friday will not be paid at overtime rates.

Paragraph 25 of SGR 2009/2 states that 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.

The day shifts worked by employees are worked within the scope of ordinary hours as specified by the Flexibility Arrangement. They are not renumerated at overtime rates or otherwise treated as hours being outside the ordinary hours of work.

Therefore payments made to employees for day shifts worked are made in respect of ordinary hours worked. As the payments are made in respect of a period which forms part of the employee's ordinary working hours, the payments form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer has an obligation to make SG payments in respect of day shifts worked by its employees.

Question 2

Night shifts

The Employer rosters its employees to work 12 hour night shifts from 6.00pm to 6.00am. The Employer pays a 15% shift loading to employees on night shifts.

The Award defines "night shift" as any shift finishing subsequent to midnight and at or before 8.00am. The Award states that night shifts shall be paid at a rate of 115% of the ordinary time rate.

As discussed above, the Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work. Hours worked during Monday to Friday are not paid at overtime rates.

Paragraph 25 of SGR 2009/2 states that 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.

Paragraph 22 of SGR 2009/2 provides that payments in respect of shift loading are specifically included in the definition of OTE:

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.

In your case, the Award provides for shift loading and overtime penalties under separate clauses. This demonstrates that shift loading under the Award is payable on ordinary hours of work and is distinguished from overtime payments. Applying paragraph 22 of SGR 2009/2, the shift-loading is therefore included in the definition of OTE.

The night shifts worked by employees are worked within the scope of ordinary hours as specified by the Flexibility Arrangement. They are not renumerated at overtime rates or otherwise treated as hours being outside the ordinary hours of work.

Therefore payments made to employees for night shifts worked are made in respect of ordinary hours worked. As the payments are made in respect of a period which forms part of the employee's ordinary working hours, the payments form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer has an obligation to make SG payments in respect of night shifts worked by its employees.

Question 3

Weekend shifts

The Employer rosters its employees to work 12 hour night shifts from 6.00pm to 6.00am, Monday to Sunday inclusive.

The Employer pays penalties at 50% loading on Saturdays and 100% loading on Sundays.

As discussed above, the Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work.

The Flexibility Arrangement states that hours worked on Saturday or Sunday will be paid at the relevant penalty rate as per the Award.

The Award states that employees are entitled to be paid a loading of 50% of the ordinary hourly base rate for any hours (ordinary hours and/or overtime) worked on a Saturday; and a loading of 100% of the ordinary hourly base rate of pay for any hours, (ordinary hours and/or overtime) worked on a Sunday.

Paragraph 25 of SGR 2009/2 states that 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.

In your case, the ordinary hours of work for employees are defined by the Flexibility Arrangement. The Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work.

While Saturday and Sunday shifts are remunerated at a higher rate than shifts worked Monday to Friday, the Flexibility Arrangement provides that weekend shifts may form part of an employee's ordinary hours of work. The Flexibility Arrangement also stipulates that an employee's ordinary hours of work are 38 hours per week, averaged over a six week period. Therefore weekend shifts which are part of the employee's scheduled 38 hours per week of ordinary hours form part of their ordinary hours of work. The fact that weekend shifts are remunerated at a higher rate than shifts worked Monday to Friday does not of itself preclude them from being part of ordinary hours of work.

Therefore payments made to employees for weekend shifts worked are made in respect of ordinary hours worked. As the payments are made in respect of a period which forms part of the employee's ordinary working hours, the payments form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer has an obligation to make SG payments in respect of weekend shifts worked by its employees.

Question 4

Casual loading

The Employer engages some of its employees on a casual basis. These casual employees receive a 25% casual loading for hours worked Monday to midnight Friday. Casual loading is not paid in relation to Saturday or Sunday shifts.

The Award provides that a casual employee working within ordinary hours will receive a 25% loading which incorporates the casual employees' entitlements to annual leave, annual leave loading and any other rates and allowances contained in the Award, except overtime and shift allowances.

As discussed above, the Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work.

The Flexibility Arrangement provides that hours worked during Monday to Friday will not be paid at overtime rates.

Paragraph 25 of SGR 2009/2 states that 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.

SGR 2009/2 also lists kinds of payments that are specifically included as OTE. Paragraph 27 of SGR 2009/2 gives the following example:

• 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.

In your case, the casual loading is paid in relation to ordinary hours worked, and is not referable only to overtime or to other hours that are not ordinary hours of work.

Therefore the casual loading payments are made in respect of ordinary hours worked. As the payments are made in respect of a period which forms part of the employee's ordinary working hours, the payments form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer has an obligation to make SG payments in respect of casual loading payments to its employees.

Question 5

Split shift loading

The Employer requires some casual employees to work a split shift, consisting of a morning shift, with several hours break, then an afternoon shift. The Employer pays a 15% loading on the afternoon shift in recognition of the employees working split shifts.

As discussed above, the Flexibility Arrangement provides that up to 12 hours per day, Monday to Sunday inclusive, may form part of an employee's ordinary hours of work.

Paragraph 25 of SGR 2009/2 states that 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.

In your case, the afternoon shift worked by these casual employees forms part of their ordinary hours. The split shift loading is therefore paid in relation to ordinary hours worked and is not referable only to overtime or to other hours that are not ordinary hours of work.

Therefore the split shift loading payments are made in respect of ordinary hours worked. As the payments are made in respect of a period which forms part of the employee's ordinary working hours, the payments form part of OTE for the purposes of subsection 6(1) of the SGAA. Therefore, the Employer has an obligation to make SG payments in respect of split shift loading payments to its employees.

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).