Edited version of your written advice

Authorisation Number: 1013019514058

Date of advice: 19 May 2016

Advice

Subject: Superannuation - Superannuation guarantee - Contribution - Enquiry

Question

Are voluntary members of a board of directors who receive honorarium payments from an incorporated not-for-profit organisation considered to be employees for the purposes of section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

Based on the information provided, the members of the board of directors are employees and the honorarium payments are earnings in respect of calculating ordinary time earnings (OTE) for the purposes of the SGAA.

Please see 'Reasons for decision' below.

Relevant facts & circumstances

• The incorporated body is registered on the Australian Charities and Not-for-profits Commission (ACNC).

• Honorariums are paid from time to time to volunteer members of the board of directors.

• The Constitution states:

• 'Board' means the Board of Directors.

• 'Director' means an elected or appointed member of the Board of Directors.

• 'Member' means a current, registered, financial Member.

• 'President' means the Director elected as President of the Board.

• Although the Constitution states no remuneration or other benefit in money is to be paid to any Member who holds any office it also states a payment may be made for goods or services rendered, whether as an employee or otherwise, in the ordinary and usual course of business.

• The Corporate Governance Statement lists the duties to be performed by the Members of the Board.

Relevant legislative provisions

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

Superannuation Guarantee Administration Act 1992 section 12

Superannuation Guarantee Administration Act 1992 subsection 12(1)

Superannuation Guarantee Administration Act 1992 subsection 12(2)

ATO view documents

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'

Reasons for decision

Summary

All organisations are subject to the superannuation guarantee (SG) legislation, including those organisations that are exempt from income tax such as a not-for-profit incorporated body.

Under subsection 12(2) of the SGAA, a person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

Based on the facts provided, it is considered that the directors receive honorariums as a reward for duties performed in the ordinary and usual course of business as a member of an executive body.

Honorariums are earnings in respect of a director's ordinary hours of work therefore they form part of their OTE for the purposes of subsection 6(1) SGAA.

Detailed reasoning

Superannuation guarantee

The SGAA states that an employer must provide the required minimum level of superannuation support for its eligible employees or pay the Superannuation Guarantee Charge (SGC).

Employers must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum SG contributions for their employees.

Generally, SG is payable for an employee who:

• works full-time, part-time or on a casual basis,

• is 18 years old or over and you pay $450 or more (before tax) in salary or wages in a calendar month,

• is under 18 years old, works more than 30 hours per week and you pay $450 or more (before tax) in salary or wages in a calendar month.

SG is not required for:

• employees you pay less than $450 (before tax) in salary or wages in any calendar month,

• non-resident employees who are paid for work done outside Australia,

• employees under 18 years old, not working more than 30 hours per week,

• employees you pay to do work of a domestic or private nature for no more than 30 hours a week, such as a part-time nanny or housekeeper.

Not-for-profit organisations

A not-for-profit organisation does not operate for the profit or gain (either direct or indirect) of its individual members.

No organisations are SG exempt - all are subject to the SG legislation, including those organisations that are exempt from income tax.

Honorarium payments

An honorarium is as an ex-gratia payment (a payment made without the giver recognizing themselves as having any liability or legal obligation) made to a person for services in a volunteer capacity or for services for which fees are not legally or traditionally required.

A true honorarium is typified by the following:

• the payment is received for personal reasons;

• the payment has no connection to the recipient's income producing activities or services rendered;

• the payment is not received as remuneration or a consequence of employment;

• the payment is not relied upon or expected by the recipient for day-to-day living;

• the payment is not legally required or expected;

• there is no obligation on the part of the payer to make the payment; and

• the payment is a token amount compared to the services provided or expenses incurred by the recipient.

Are directors employees?

Subsection 12(1) of the SGAA provides that the terms 'employer' and 'employee' have their ordinary meaning. Under subsection 12(1), a worker will be an employee for SG purposes if he or she is a common law employee.

However for the purposes of the SGAA, subsections 12(2) to 12(11) expand the meaning of those terms and make particular provision to avoid doubt as to the status of certain persons.

In particular, subsection 12(2) of the SGAA expands the ordinary meaning of the term employee to include directors who receive payment for performance of duties from a body corporate. It states:

A person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? explains when an individual is considered to be an employee' under section 12 of the SGAA. In particular paragraphs 62 and 63 state:

62. Under subsection 12(2) of the SGAA, a person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.

63. In the majority of circumstances, such a person will be called a 'director'. The SGAA will apply even if the person is not referred to as a director but falls within the terms of subsection 12(2).

Paragraph 62, footnote 46, of SGR 2005/1 defines body corporate thus:

'Body corporate' is a general term to describe an artificial entity having a separate legal existence.

The Macquarie dictionary defines the term 'body corporate as 'a person, association or group of persons legally incorporated in a corporation'.

Accordingly, the facts and evidence indicate that directors in receipt of an honorarium payment for performance of duties as a member of an executive body (board of directors) of an incorporated body are considered to be employees under the expanded definition of 'employee' in subsection 12(2) of the SGAA 1992.

Ordinary time earnings

All employers need to calculate their SG liability against an employee's OTE as defined in the SGAA.

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, which is the maximum limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' provides further guidance on what constitutes OTE.

Paragraphs 16-18 of the Ruling outlines what ordinary hours of work are when they are not specified in an award or an agreement, and states:

'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.'

Paragraph 40 of SGR 2009/2 further expands the ordinary hours of work to directors and states that all fees paid to a company director are earnings in respect of the director's ordinary hours of work.

In accordance with SGR 2009/2 all fees paid to a director are earnings in respect of the director's ordinary hours of work.

Accordingly, in line with the above, honorariums paid to directors of the board are paid in respect of OTE and are subject to SG. The fact that the payment may be for voluntary duties does not change the nature of the payment from being salary and wages.

Application of the law to the facts

In this case, an honorarium is paid from time to time to volunteer members of the board of directors of a not-for-profit incorporated body.

The Constitution of the incorporated body allows for payment to any member for goods or services rendered, whether as an employee or otherwise, in the ordinary and usual course of business.

Subsection 12(2) of the SGAA expands the ordinary meaning of the term employee to include directors who receive payment for performance of duties from a body corporate.

Incorporated not-for-profit organisations are subject to the SG legislation.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' outlines what ordinary hours of work are when they are not specified in an award or an agreement. At paragraph 40 it expands the ordinary hours of work to directors and states that all fees paid to a company director are earnings in respect of the director's ordinary hours of work.

Therefore it is considered that honorariums received by volunteer members of the board of directors are earnings in respect of ordinary hours of work within the definition of subsection 6(1) of the SGAA.

Directors are employees under the expanded definition of purposes of subsection 12(2) of the SGAA.

Accordingly the not-for-profit incorporated body must provide the required minimum level of superannuation support for its eligible employees.