Edited version of your written advice

Authorisation Number: 1012733733574

Advice

Subject: Ordinary time earnings (OTE)

Question 1

Does the overtime crib breaks defined in the agreement (the Agreement) form part of the employees' OTE?

Advice

No, the crib break defined in the Agreement does not form part of the employees' OTE where it is paid in relation to overtime hours.

Question 2

Does the overtime paid break defined in the award (the Award) form part of the employees' OTE?

Advice

No, the paid break as defined in the Award does not form part of the employees' OTE where it is paid in relation to overtime hours.

This advice applies for the following period:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The arrangement commences on:

1 July 2014

Relevant facts and circumstances

We received an application for advice in regards to the treatment of crib payments paid during overtime hours.

You agreed to receive administratively binding advice in regards to employees engaged under the Agreement and the Award.

The Agreement describes ordinary hours and overtime and defines certain crib payments being paid for overtime.

The Award describes ordinary hours and overtime and defines certain crib payments as being paid for overtime.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992 (SGAA) section 6(1)

Reasons for decision

The Superannuation Laws Amendment (2004 Measures No 2) Act 2004 simplified the earnings base of an employee for SGAA purposes. These amendments which apply from 1 July 2008 have the effect that all employers need to calculate their SGAA liability against an employee's OTE, as defined in the SGAA.

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 …

- (ii) 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.

The Commissioner's views on OTE are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. (SGR 2009/2).

Paragraph 12 of SGR 2009/2 provides the meaning of 'earnings' and states:

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'.

Paragraphs 13 to 18 of SGR 2009/2 outline the meaning of 'ordinary hours of work'. It 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 employees '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 should 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.

Paragraphs 25 and 26 of SGR 2009/2 specify that earnings 'in respect of ordinary hours of work' mean all earnings other than overtime. Paragraphs 25 and 26 state:

25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remunerated for working overtime hours, or are otherwise referrable 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 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.

Application of the law to your circumstances

Question 1

Under paragraph 25 of SGR 2009/2, all amounts of earnings are in respect of the employees ordinary hours of work unless they are remunerated for working overtime hours, or are referrable only to overtime hours.

Therefore it holds that all payments associated with crib breaks, taken during overtime, are also excluded from OTE. Therefore it is necessary to determine which crib break payments, as described in the Agreement, is associated with overtime and which crib break payments is associated with employees' ordinary hours of work.

The Agreement describes ordinary hours and overtime. Certain crib payments are paid during overtime. Under these circumstances the crib break payment is clearly in relation to overtime hours and it is therefore not OTE.

In conclusion, whether crib break payments are considered OTE depends on what hours the crib break is in relation to. Where the crib break is given during genuine overtime hours, the payment in relation to the crib break is not OTE.

Question 2

The Award describes overtime for employees. Where genuine overtime is worked which is not OTE, and an employee receives a paid break during this time then, as above, the break payment is in relation to overtime work and is not OTE.