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Edited version of your written advice
Authorisation Number: 1051453722192
Date of advice: 15 November 2018
Subject: Ordinary times earnings and rostered days off
Question
Is a lump sum payment for accrued rostered days off, made on termination of employment, considered ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee Administration Act 1992 (SGAA)?
Answer
No.
This ruling applies for the following period
1 July 2018 – 30 June 2019
Relevant facts and circumstances
1. Employees of the Employer are covered by Enterprise Agreements.
2. The Agreements define ordinary hours of work for a full time employee shall be 38 hours per week over a work cycle of four weeks (152 hours). This represents 19 x 8 hour work days and one x 8 hour RDO accrued.
3. Employees may elect to cash out some or all of their accrued RDO in accordance with the Agreements.
Reasons for decision
Detailed reasoning
4. OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA and includes 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. However it 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.
5. OTE is described in SGR 2009/2 as the payment for the ‘ordinary hours of work’. The term ‘ordinary hours of work’ is defined as:
● the hours specified as the employee’s ordinary hours under an award or agreement; or
● if the ordinary hours are not specified, the hours regularly worked by the employee; or
● if the ordinary hours are not specified and the regular hours are impossible or impractical to determine, the actual hours worked.
6. 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.
7. 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 similar 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.
Rostered days off and OTE
8. Paragraph 32 and 33 of SGR 2009/2 clarify that RDO payments are normally OTE:
32. Subject to the exclusions mentioned at paragraph 34 of this Ruling, salary or wages that an employee receives, at or below his or her normal rate of pay for ordinary hours of work, in respect of periods of paid leave is simply a continuation of his or her ordinary time pay. It is OTE. It does not matter whether the entitlement to take the paid leave accrued gradually over time, arose in a specified circumstance or following a specified event, or was simply granted to the employee in the exercise of the employer's discretion.
33. Similarly, salary or wages received at the ordinary time rate in respect of public holidays, rostered days off and the like is OTE.
9. Payments made to an employee on termination of their employment in lieu of unused sick leave, annual leave or long service leave are expressly excluded from the definition of OTE under subsection 6(1) of the SGAA. However, if a payment for these types of unused leave occurs while the employee remains employed, this amount is paid in connection with the employee’s ordinary hours in the same way as any other leave payment.
10. Whether a lump sum payment of accrued time for rostered days off is considered OTE under the SGAA depends on whether it is 'earnings in respect of ordinary hours of work'. This position applies equally to payments 'cashed out' to an employee during the course of their employment, or on their termination.
11. In this case, the Agreements prescribe the ordinary hours as 38 per week over a work cycle of four weeks (152 hours). This represents 19 x 8 hour work days and one x 8 hour RDO accrued. All RDO hours are accrued on hours worked in excess of the 152 ordinary hours as described in the Agreements.
12. This means that a lump sum payment accrued for RDOs would represent an amount paid for work performed in excess of, or in addition to, an employee's normal working hours for a settlement period, and therefore would not be 'in respect of ordinary hours of work’. Even though the amount will be OTE when paid to an employee who takes an RDO, when the amount is paid on termination, it only relates to an amount accrued for time worked above the ordinary hours of the employee.
13. Subsequently, such a payment to an employee would not be OTE as defined in subsection 6(1) of the SGAA.
Relevant legislative provisions
Superannuation Guarantee Administration Act 1992 subsection 6(1)
We followed these ATO view documents
Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms ‘ordinary time earnings’ and ‘salary or wages’,