Edited version of your written advice

Authorisation Number: 1012942236795

Date of advice: 3 February 2016

Ruling

Subject: Payments made in lieu of notices to employees for purposes of Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Question 1

Are payments in lieu of notice made to an employee aged 65 years and over as part of a voluntary severance scheme undertaken by the organisation considered to be ordinary time earnings (OTE) for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Yes, please see Reasons for decision below.

Question 2

Are payments in lieu of notice made to employees under 65 years of age as part of a voluntary severance scheme undertaken by the organisation considered to be OTE for the purposes of the SGAA?

Advice

Yes, please see Reasons for decision below.

This advice applies for the following period:

1 July 20XX to 30 June 20XX

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

• Details of the scheme were advised to employees with an application form attached for interested employees to complete.

• The scheme provides for three weeks' pay for each year of service up to a maximum of 52 weeks, plus 20 weeks payment in lieu of notice of redundancy where sufficient notice is not given. Employees who volunteered to enter into the scheme could nominate their last date of service.

• One employee applied for the severance with the employee's date of birth indicating that they were over 65 years of age.

• You became aware that in accordance with Taxation Ruling TR 2009/2, paragraph 34, an employee must be less than 65 years of age at the time of dismissal for a redundancy payment to qualify as a genuine redundancy payment.

• In the application you contend the following:

• The scheme as advised by the organisation is considered a genuine redundancy payment.

• The organisation considers that the payment in lieu of notice is part of the redundancy payment and therefore not considered as ordinary time earnings and therefore superannuation guarantee (SG) is not payable on this amount. You refer to a supporting document provided.

• Reference is also made to TR 2009/2, paragraph 64 which states that a payment in lieu of notice can be a genuine redundancy payment provided that such a payment would not be expected on voluntary termination. You also refer to Superannuation Guarantee Ruling SGR 2009/2, paragraphs 46 and 74 which related to redundancy payments.

• You advise that the implications were not apparent to the organisation in relation to an individual being over 65 years of age and what change this may have as to whether the payment in lieu of notice may be considered to be OTE. It was not until the individual wrote to the organisation seeking payment of the SG component.

• You were contacted by the Australian Taxation Office (ATO) to provide the following further information:

• Copy of all relevant documentation that was issued to the employee together with the completed documentation returned to the organisation by the employee.

• Copy of the completed application for the scheme from the employee.

• You also confirmed the relevant legislative instrument that the employees are engaged under.

• You confirmed that the ATO provided oral advice only with regards to the scheme.

• We requested further information in relation to the payment in lieu of notice for those employees who were not part of the scheme. You confirmed that that if any employee were to tender their resignation voluntarily that there is no payment in lieu of notice. Such an employee would only receive payment of unused leave entitlements, i.e. annual and long service.

Relevant legislative provisions

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

Reasons for decision

Question 1

Summary

Payment in lieu of notice paid to an employee aged 65 years and over as part of a voluntary severance scheme undertaken by the organisation is considered to be OTE for the purposes of the SGAA with the exception of any amounts of the payment that relate to annual leave and long service leave in accordance with subsection 6(1) of the SGAA.

Question 2

Payment in lieu of notice paid to those employees less than 65 years of age as part of a voluntary severance scheme undertaken by the organisation is considered to be OTE for the purposes of the SGAA with the exception of any amounts of the payment that relate to annual leave and long service leave in accordance with subsection 6(1) of the SGAA.

Detailed reasoning

Ordinary time earnings

Ordinary time earnings, in relation to an employee, is defined in subsection 6(1) of the SGAA as:

(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.

Ordinary time earnings are generally what employees earn for their ordinary hours of work, including over-award payments, bonuses, commissions and allowances.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2), explains the meaning of OTE. This ruling also explains the meaning of 'salary or wages' as defined in section 11 of the SGAA.

The definition of 'salary or wages' is relevant in calculating the superannuation guarantee shortfall of individual employees where their employer has not provided the required minimum level of superannuation support. SGR 2009/2 applies to payments made to employees in the quarter beginning 1 July 2009 and all later quarters.

Payment in lieu of notice

Payments in lieu of notice are OTE. Paragraph 38 of SGR 2009/2 specifies as follows:

Payments in lieu of notice

38. An employee may be entitled to a period of notice before the employer's termination of his or her employment takes effect. Awards and agreements often provide that, instead of giving this notice, the employer may simply pay an amount equivalent to the ordinary time rate of salary or wages that the employee would have earned during the notice period. Such payments are OTE.

In your application, you advised that the scheme provided for 3 weeks' pay for each year of service up to a maximum of 52 weeks, plus 20 weeks' payment in lieu of notice of redundancy where sufficient notice is not given. The scheme allowed employees to volunteer to enter the scheme and nominate their last date of service.

You also provided a copy of the relevant documents which confirmed the inclusion of the payment in lieu of notice period.

Based on the information provided, the payments in lieu of notice made to both the employee aged over 65 and for those less than 65 years of age fall within the meaning of paragraph 38 of SGR 2009/2. Furthermore, they fall specifically within the definition of OTE contained in subsection 6(1) of the SGAA.

However, the payment in lieu of the unexpired portion of the notice period may include an amount equivalent to the annual leave and long service leave entitlements that would have accrued to the employee had they worked through their notice period. These payments are specifically excluded from the definition of OTE contained in subsection 6(1) of the SGAA.

Conclusion

According to SGR 2009/2, paragraph 38 with reference to the evidence and facts that you have provided, the payment in lieu of notice that you have paid to those volunteers who entered into the scheme is paid in relation to those employees ordinary hours of work. Accordingly the payment satisfies the definition of OTE as set out in subsection 6(1) of the SGAA.

However as the payment in lieu of notice may include an amount equivalent to the annual leave and long service leave entitlements that would have accrued to the employee's had they worked through their notice period, the amount of the payment which relates to these leave entitlements are not treated as OTE as provided under subsection 6(1) of the SGAA.