Edited version of private advice

Authorisation Number: 1051482609448

Date of advice: 26 June 2019

Ruling

Subject: Superannuation guarantee and ordinary time earnings

Question

Are workers compensation payments made by the Employer to their employees who are not required to attend work due to incapacity or whose employment has been terminated meet the definition of ordinary time earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No

This advice applies for the following periods:

Income year ending 30 June 2018

Income year ending 30 June 2019

The arrangement commences on:

1 July 2017

Relevant facts and circumstances

The Employer is currently not making Superannuation Guarantee (SG) payments to employees who are off work due to work related injury and who are being paid Workers Compensation payments (WC).

Employees are paid under the Award

You have further stated that the ATO information states that ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages':

68. Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work as required form part of 'salary or wages'. In contrast, if the employment has been terminated, or if the employee is paid workers' compensation for hours not worked (or not attending work as required); the payment would not be 'salary or wages' as in these situations it cannot be said that the payment is a reward for the services of the employee to the employer.

The Employees on workers compensation have not been terminated from their employment

In relation to the Employees that are currently not working, the point that their employment could be terminated varies. You have stated you expect they would remain on worker's compensation if approved by the insurance company. When notified that the worker could return to work, then it would be assessed if they could carry out their job.

The payments are made via the Employer

Relevant legislative provisions

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

Reasons for decision

Summary

Workers compensation payments made by or on behalf of the Employer to the Employees who are not required to attend work due to incapacity or whose employment has been terminated are not salary and wages and not OTE of the Employees for the purposes of subsection 6(1) of the SGAA.

Detailed reasoning

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 their 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.

The Commissioner's view on OTE, as defined in subsection 6(1) of the SGAA, is set out in SGR 2009/2. Generally, an employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

At paragraphs 68 and 76 of SGR 2009/2 the Commissioner discusses and expands on the meaning of 'not working' where compensation payments do not meet the definition of salary or wages nor ordinary time earnings where the employment has been terminated (emphasis added). They state:

Workers' compensation payments

68   Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work as required form part of 'salary or wages'. In contrast, if the employment has been terminated, or if the employee is paid workers' compensation for hours not worked (or not attending work as required); the payment would not be 'salary or wages' as in these situations it cannot be said that the payment is a reward for the services of the employee to the employer.

Workers' compensation payments - employee not required to work

69   Workers' compensation payments made by or on behalf of an employer to an employee who is not required to attend work due to incapacity, or whose employment has been terminated, are not salary or wages. '

You have advised that payments are being made to Employees by the Employer for employees who are not required to attend work due to injury.

At paragraphs 147 in Example 18 SGR 2009/2 the Commissioner provides an example of two employees who were both injured and both received workers compensation payments to illustrate the different treatment of WC payments. In the case of the employee who returned to work and was placed on lighter duties, the WC payment was salary and wages. In the case of the employee who was not able to return to work as a result of the accident the WC was not salary or wages.

At paragraphs 271 to 273 of SGR 2009/2 WC payments and other payments made on behalf of the employer are considered to be salary and wages where the employee performs work or is required to attend work.