Edited version of your written advice

Authorisation Number: 1012985670519

Date of advice: 6 May 2016

Advice

Subject: Ordinary times earnings for superannuation guarantee

Question

Do earnings in respect of hours worked by trainees, that are 'training hours' in addition to the twenty hours a week worked as 'Ordinary Hours' under the standard trainee Contract of Employment (the Contract), 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.

This advice applies for the following period:

Year ended 30 June 2016

The arrangement commences on:

1 July 2015

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.

1. You stated in your request for advice:

• You employ a trainee for an agreed number of hours each week to undertake an accredited Certificate III qualification.

• The course runs for 12 months and you will provide on-the-job training.

• The trainee will also be studying at a registered training organisation (RTO) who will provide theoretical training.

• It is a requirement of the RTO that this student engages in a minimum amount of work experience hours to complete their course.

• However you only employ this trainee to work for less than this minimum amount of hours, leaving a shortfall of hours which the trainee will need to undertake, unless they are eligible for early completion.

• These additional work experience or 'training' hours ('training' hours) can be worked at a different employer, venue, and even free of charge. It is basically work experience or an internship.

• You will offer the 'training' hours, where they become available, to the trainee and pay them at the traineeship rates for all hours worked.

• You provide trainees with a template or standard agreement, the Contract, as all trainees had the same terms of contract which had the payment for 'training' hours included.

2. You provided an unsigned copy of a standard Contract of Employment (the Contract) which sets out the terms and conditions of employment for the trainees, which is subject exclusively to the pay and conditions of the relevant industry Award (the Award) and the National Employment Standards (NES) under the Fair Work Act 2009.

3. In a telephone conversation with the Tax Office you provided the following information:

• In a shift the trainee may shadow another worker for an hour or two hours to learn how particular tasks are done. They are shown how to perform tasks, and then are set to perform the tasks for a number of hours later in the shift.

• Their hours agreed to under their employment agreement and the 'training' hours required by the training organisation to fulfil their Certificate III are included in the common staff roster as they become available.

• The trainee does not need to perform their extra hours with you, however if they do they will be paid at the normal rate.

4. You provided an example roster for a trainee undergoing a Certificate III The trainee completes a timesheet by hand each shift with the times and days worked, with a total number of hours for the shift and signs off on at the end of each shift and at the end of their work for the fortnightly period.

Relevant legislative provisions

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

Superannuation Guarantee (Administration) Act 1992 Section 11

Superannuation Guarantee (Administration) Act 1992 Section 12

Reasons for decision

Summary

Earnings of your trainees engaged by you under the Contract and the Award in respect of the 'training' hours worked to satisfy the RTO requirements, above the agreed number of hours per week of work agreed between you and the trainees, form part of the employees' OTE as these earnings are in relation to the trainees' ordinary hours of work.

Detailed reasoning

The SGAA requires that eligible employees receive SG support unless there is an exclusion under the SGAA or the SGAR.

Meaning of employee

For the purposes of the SGAA, subsection 12(1) of the SGAA provides that 'employee' and 'employer' have their ordinary meaning, that is, their meaning under common law. This ordinary meaning of 'employee' is expanded in section 12 of the SGAA to avoid doubt as to the status of certain persons. Subsection 12(3) of the SGAA provides that:

If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) explains when an individual is considered to be an 'employee' under section 12 of the SGAA.

Where workers meet the definition of an employee for the purposes of the SGAA under either the common law definition or expanded definition as set out in subsection 12(3) of the SGAA, the employer will have an obligation to provide superannuation support to the workers in accordance with the SGAA.

Paragraph 60 of SGR 2009/2 states:

The ordinary meaning of the term 'salary or wages' is remuneration paid to employees for their services as employees. In most practical situations, it is straight-forward to determine whether any given payment made in an employment context is salary or wages.

Payments you make to your trainees under the terms of the Contract for their agreed hours and training hours, forming part of the requirements of their Traineeship, are payments to the trainees under a contract for their services that is for their personal labour and skills. Therefore all these payments are salary and wages, and the trainees are your eligible employees for SG during their agreed hours and their training hours.

All employers are required to provide a minimum level of superannuation support for their eligible employees by the SG period due date. 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 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 employee's '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.

The Commissioner's view is that "ordinary hours of work" for OTE purposes should be interpreted in the context of the Australian industrial relations system.

Earnings 'in respect of ordinary hours of work' means all earnings other than overtime, as paragraph 25 of SGR 2009/2 states:

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.

Paragraphs 225 to 228 of SGR 2009/2 expand on this point and state:

225. 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.

226. The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours' and therefore OTE. The Commissioner's view is that the expression 'in respect of ordinary hours of work' was intended to ensure that overtime payments, and cognate amounts, were excluded from the earnings base. It was not intended to exclude amounts paid at a worker's ordinary time rate solely on the ground that they were not earned as a direct result of actually working particular hours in ordinary time.

227. For example, during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours.

228. Given this view, the Commissioner considers that 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. However payments that are not considered 'salary or wages' for the purposes of the SGAA cannot be OTE.

In your case, your casual employees' "ordinary hours of work" are the hours specified as ordinary hours of work in the documents governing their employment. These documents do not have to use the exact expression "ordinary hours of work"; a genuine distinction between ordinary hours and non-ordinary hours is sufficient.

In your case, the documents governing your trainees' employment are the Contract, the Award, and the National Employment Standards (NES) under the Fair Work Act 2009. However it is important to note that the terms in the Contract are not applicable if they constitute conditions which amount to less than those set down in the NES and the Award.

The Contract attempts to draw a distinction between 'Ordinary hours' and 'Training hours,' by defining ordinary hours in terms of the rostered hours each period you agree under the Contract to pay the trainee will be paid at Award rates. In your application you provided a number of hours each week as the ordinary or agreed hours for which you are obliged to will pay the trainee.

However, a Schedule to the Award which sets the training wage under which you state you pay the trainees, does not distinguish between training hours and ordinary hours of trainees. Indeed it states:

Time spent by a trainee, other than a trainee undertaking a school-based traineeship, in attending any training and assessment specified in, or associated with, the training contract is to be regarded as time worked for the employer for the purposes of calculating the trainee's wages and determining the trainee's employment conditions.

In this item, there is no distinction drawn between 'training' and 'work for the employer.' Indeed under the Award they are required to be counted as one and the same.

In your case, the contextual information to the sample roster you provided highlights that in practical terms there is no genuine distinction between your trainees 'ordinary' and 'training' hours. As you say in this contextual information, the trainees are learning the requirements and techniques of their tasks throughout each shift and their work requires substantial input from other workers for at least several months of their traineeship.

According to paragraph 25 of SGR 2009/2, '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.' Your trainees do not meet the definition of part-time employees under the Award and the conditions for casual employees apply to them. According to the Award, casual employees are not entitled to over-time, therefore any, 'training' hours worked in excess of the agreed number of weekly 'ordinary' hours are not overtime. Under SGR 2009/2, then, these 'training' hours are included in your trainees' ordinary hours of work for the purposes of OTE.

Conclusion

Earnings of your trainees engaged by you under the Contract and the Award in respect of the 'training' hours worked to satisfy the RTO requirements, above the hours per week of work agreed between you and the trainees, form part of the employees' OTE as these earnings are in relation to the trainees' ordinary hours of work. Therefore, you have an obligation to make SG payments in respect of these additional 'training' hours worked by your trainees.