Edited version of your written advice

Authorisation Number: 1051291094188

Ruling

Subject: Ordinary time earnings

Question

What are the ordinary hours of work for the casual employees of the employer for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Advice

The ordinary hours of work are a maximum of 20 hours per week including all times worked up to 8.00pm on Monday to Saturday

The arrangement commences on:

2015

Relevant facts and circumstances

Your advisor wrote to us asking for administratively binding advice of your superannuation guarantee obligations in regards to your casual employees.

You engage casual employees under an enterprise agreement (the Agreement).

Relevant legislative provisions

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

Reasons for decision

From 1 July 2008, all employers must use OTE as the earnings base to calculate the minimum super guarantee contributions required for your employees.

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:

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.

Paragraphs 41 of SGR 2009/2 outline that overtime earnings are specifically in excluded in definition of OTE:

41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.

Paragraphs 20 to 22 and paragraphs and 220 to 222 of SGR 2009/2 outline earnings which are specifically included in definition of OTE:

20. Earnings consisting of over-award payments, shift-loading or commission are specifically included in the definition of OTE by subparagraph (a)(ii) of that definition in subsection 6(1).

21. An over-award payment is the component of a payment in excess of an award entitlement. The Commissioner's view is that the specific inclusion of these payments does not apply to over-award payments that are specifically referable to hours worked that are not ordinary time hours. For example, an employer's policy may be to offer a higher rate of overtime pay for some overtime hours worked than the penalty rate required by an award. Even though technically over-award payments, such additional payments would not be OTE under subparagraph (a)(ii) of the definition of OTE in subsection 6(1).

22. A shift-loading is an amount paid to a worker in addition to his or her basic hourly rate for having to work outside the usual span of time for day workers. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements. Often these are mutually exclusive under awards and agreements, but if an employee is entitled to a shift-loading in respect of hours other than ordinary hours of work, the Commissioner's view is that the specific inclusion of shift-loadings does not apply in that circumstance.

220. The Macquarie Dictionary defines ‘shift loading’ as:

An allowance paid to employees on shiftwork to compensate them for having to work outside the usual span of hours fixed for day workers.

221. A payment in addition to the ordinary rate of pay made to a shift worker by reason of compensation for working outside the span of hours which is designated for day workers, for example, early morning, late night, weekends or public holidays is a shift-loading, Such payments are therefore included in the definition of OTE in subsection 6(1).

222. Shift-loadings payable on ordinary hours of work must be distinguished from overtime payments under awards and agreements. Often these are mutually exclusive under awards and agreements, but if an employee is entitled to a shift loading in respect of hours other than ordinary hours of work, the Commissioner’s view is that the specific inclusion of shift-loadings does not apply in that circumstance.

Examples 5 and 6 in SGR 2009/2 provide scenarios involving shift allowances and overtime rates due to a ‘bandwidth’ clause.

Example 5 – Casual employee who qualifies for shift allowances for some hours and overtime payments for other hours

103. Otzi is employed on a casual basis under a collective agreement. The agreement provides that casuals have no guaranteed minimum working hours in any given week and no entitlement to paid leave. Instead Otzi receives a ‘casual loading’ equal to 19% of his ordinary time rate of pay for every hour he works.

104. The agreement provides that the ordinary hours of work for all employees, including casuals, are no more than 38 hours in any given week. Work beyond those ordinary hours attracts an overtime penalty rate, in addition to any casual loading otherwise payable.

105. Also, all workers who are required to work late at night or on weekends are entitled to a shift-loading payment of 25% of their ordinary time rate of pay, in addition to any casual loading. However shift-loadings are not payable for hours that attract the overtime rate.

Salary or wages

106. All wage payments, including all loadings and penalties, made to Otzi are a reward for services he provides as an employee and are therefore ‘salary or wages’.

OTE

107. All wage payments, including the casual loading and any shift-loading, for ordinary hours of work as defined in the agreement are OTE. However, if Otzi works any overtime hours, none of the pay he receives for those hours is OTE because such pay is entirely in respect of hours that are not ordinary hours of work.

Example 6 – Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause

108. Take the facts of Example 5 with the following changes. The agreement makes no provision for shift-loadings. Instead, and in addition to the overtime entitlement mentioned in Example 5 at paragraph 104 of this Ruling, any worker, including a casual, who works hours outside a specified bandwidth of hours, being from 8.00am to 6.00pm Monday to Friday (public holidays excluded) is entitled to be paid at overtime rates. These hours are defined by the agreement not to be ordinary hours of work.

109. Otzi routinely works an evening shift, most of his working days starting at 4.00pm and ending at 11.00pm. Thus he is paid at the overtime rate for the hours worked after 6.00pm.

Salary or wages

110. All wage payments, including the casual loading and any overtime penalties, made to Otzi are a reward for services he provides as an employee and are therefore ‘salary or wages’.

OTE

111. All wage payments, including the casual loading, for the ordinary hours of work as defined in the agreement are OTE. However, the hours that Otzi works that are overtime hours – including those that are overtime hours because they are worked outside the 8.00am to 6.00pm bandwidth mentioned above – are not ordinary hours. All pay for these hours is not OTE.

Application to your circumstances:

In your case the Agreement stipulates what the ordinary hours are for your employees. The Agreement stipulates that ordinary hours are a maximum of 20 hours per week Monday to Saturday. The Agreement states that ordinary hours are worked within a band up until 8:00pm on Monday to Saturday. The Agreement also stipulates that any hours worked over the twenty ordinary hours in a week (i.e. Monday to Saturday) will be remunerated at a higher rate. Hours worked after 8.00pm also paid at the penalty rate.

As per paragraph 13 of SGR 2009/2 the award defines these hours to be outside of employees’ ordinary hours. Furthermore, as per paragraph 14 of the SGR 2009/2, this Agreement draws a genuine distinction between these hours and employees’ ordinary hours by having these hours remunerated at a higher rate. Therefore these hours are overtime hours.

Paragraph 41 of SGR 2009/2 specifically excludes earnings in respect of overtime in OTE.

In conclusion, the ordinary hours of work are a maximum of 20 hours per week, worked up until 8.00pm, Monday to Saturday.