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Edited version of private advice
Authorisation Number: 1051506838925
Date of advice: 12 March 2020
Ruling
Subject: Employer superannuation guarantee in relation to SG contributions on leave loading
Question
Does the entitlement to receive annual leave loading provided for in the Awards and Agreements form part of an employee's ordinary time earnings (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Answer
Yes
We considered these to be the relevant facts
· You wrote to the Commissioner requesting administratively binding advice in respect of the Employer's superannuation guarantee (SG) obligations in relation to the payment of SG contributions on leave loading paid under the Agreements and Awards.
· We acknowledged the receipt of the application and to determine whether the employees of the Employer worked overtime.
· It was confirmed by email that the employees of the Employer did work overtime hours.
· The employees of the employer are employed under numerous Awards and Agreements
· The Agreement does not stipulate that annual leave loading is solely paid for the loss of opportunity for overtime.
Relevant legislative provisions
Superannuation Guarantee Administration Act 1992 subsection 6
Reasons for decision
Summary
As the Awards and Agreements in this case do not stipulate that it is a payment entirely in relation to the loss of opportunity for overtime, the payment of annual leave loading is OTE.
Detailed reasoning
Subsection 6(1) of the SGAA defines OTE in relation to an employee to mean:
(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) a payment in lieu of unused annual leave within the meaning of subsection 26AC(1) of the Income Tax Assessment Act 1936 (ITAA);
(C) a payment in lieu of unused long service leave within the meaning of subsection 26AD(1) of the ITAA; and
(ii) earnings consisting of over-award payment, shift loading or commission; or
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.
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 Commissioner's views on OTE generally, including an employee's ordinary hours of work are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2).
SGR 2009/2explains that an employee's 'ordinary hours of work' are the hours specified as ordinary hours of work under the relevant award or agreement that governs the employee's conditions of employment and highlights that any hours worked in excess of, or outside the span those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. In particular, the ruling states that:
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 employment and are not OTE because they are not in respect of any particular hours of work.
An award or agreement may itself have a definition of 'ordinary time earnings' that purports to apply for superannuation purposes. However, the central question posed by the definition of OTE in the SGAA s what amounts are 'earnings in respect of ordinary hours of work'.
This could in some cases be a different amount from any purported amount of 'OTE' in the award or agreement. As mentioned in paragraph 13 of this Ruling, the Commissioner accepts that 'ordinary hours of work' are as determined by the relevant award or agreement, but that does not imply that OTE itself is necessarily as determined by the award or agreement.
Paragraphs 35 and 238 of SGR 2009/2 states that annual leave loading is not OTE if it is demonstrably referable to a notional loss of opportunity to work overtime. However, the inclusion of paragraphs 35 and 238 in SGR 2009/2 were not intended to remove annual leave loading as OTE in all cases but to restrict superannuation payable on annual leave loading where it is demonstrably related to the loss of overtime.
It is considered that annual leave loading will be demonstrably referable where the award specifically states that annual leave loading is paid to eligible workers entirely for the loss of opportunity to work overtime that would have been otherwise available if not for the period of annual leave.
Therefore, the Awards and Agreements in this case do not stipulate that it is a payment entirely in relation to the loss of opportunity for overtime, the payment of annual leave loading is OTE.