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Edited version of your written advice
Authorisation Number: 1012782901371
Advice
Subject: Ordinary time earnings
Question 1
What are the ordinary time earnings (OTE), as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992, (SGAA) of full-time employees, under an Employment Agreement (EA) underpinned by an Award?
Advice
The OTE of full-time employees, under an EA underpinned by the Award are the earnings in respect of an average of 38 hours per week and may be calculated over a period of not more than 28 days
Question 2
What are the OTE, as defined in subsection 6(1) of the SGAA of casual employees, under the Award?
Advice
The OTE of casual employees under the Award are the earnings in respect of all hours up to an average of 38 hours per week and may be calculated over a period of not more than 28 days.
The arrangement commences on:
After 1 July 2014
Relevant facts and circumstances
You provided a copy of the EA and the Award.
Relevant legislative provisions
Superannuation Guarantee (Administration) Act 1992 subsection 6(1)
Reasons for decision
Detailed reasoning
Legislation and Superannuation Guarantee Ruling
All employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.
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
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.
Question 1 - OTE of a full-time employee
OTE for a full-time employee are an average of 38 hours per week and may be calculated over a period of not more than 28 days.
Ordinary hours
The relevant documents in this case are the EA underpinned by the Award.
A clause of the Award defines a full-time employee as being engaged for an average of 38 ordinary hours per week calculated over 28 days.
A clause of the Award provides that an employer and an employee may agree to vary the application of certain terms of the award. A range of requirements must be met to validate any changes made in this area of award flexibility. It is noted that there is no scope to vary the Award terms regarding employees' ordinary hours of work or the base rate of pay.
Consequently, the Award is the source that determines the ordinary hours. The earnings in respect of those hours will form the OTE of full-time employees.
Earnings in respect of ordinary hours
The hourly rates under the Award are calculated on the basis of a applying certain factors to a base rate.
In conclusion, the OTE for full-time employees are the earnings in respect of an average of 38 hours per week and may be calculated over a period of not more than 28 days.
Question 2 - OTE of a casual employee.
Ordinary hours of work
A clause of the Award defines a casual employee. Casual employees are paid an additional 15% and 25% on the hourly rates.
A clause of the Award defines a full-time employee as being engaged for an average of 38 ordinary hours per week calculated over 28 days.
This is an inclusive paragraph and such covers both full-time and casual employees as described under the Award.
In conclusion, under the Award, the ordinary hours for a casual employee shall be an average of 38 hours per week, and may be calculated over a period of not more than 28 days.
Earnings in respect of ordinary hours
The hourly rates under the Award are calculated on the basis of a applying factors to a base rate.
An additional loading on the hourly rates is paid to casual employees.
Under paragraph 22 of SGR 2009/2 the additional loadings are loadings paid in respect of ordinary hours and will be included as part of OTE.
Accordingly, the rates to be used in the determination of earnings will be the above RTA rates and loadings.
OTE
In conclusion, the OTE for casual employees are the earnings in respect of all hours up to an average of 38 hours per week and may be calculated over a period of not more than 28 days.