Edited version of private advice

Authorisation Number: 1051527146920

Date of advice: 3 July 2019

Advice

Subject: Ordinary time earnings

Questions

Q1. Is the District Allowance paid by the taxpayer to eligible employees Ordinary Time Earnings (OTE) for the purpose of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Q2. Is the Car Allowance paid by the taxpayer to eligible employees OTE for the purpose of subsection 6(1) of the SGAA?

Answer

Q1. Yes

Q2. No

This advice applies for the following period:

30 June 2020

The arrangement commences on:

1 July 2019

Relevant facts and circumstances

Facts

The taxpayer pays employees various allowances in addition to their total remuneration package (TRP).

Some of the allowances are specified in the taxpayer's Enterprise Agreement (EA) and some are governed by internal policies.

Clause 20 of the EA states that the taxpayer provides employer superannuation contributions at 10% of an employee's TRP.

An employee's TRP is defined in the EA as an employee's fixed rate of pay excluding employer superannuation contributions and any form of incentive payment.

The EA covers a number of common allowance situations such as meal, travel, relocation, stand-by, hire duties allowances and, district allowance.

The EA only requires the taxpayer to provide superannuation contributions in respect of TRP.

The taxpayer's practice has provided superannuation contributions at 10% of an employee's TRP plus any other payments that fall within an employee's OTE as defined in section 6 of the SGAA.

An employee employed at a branch which is situated in a nominated town or city, during the period of employment at such branch, will be paid a District Allowance and if applicable, a spouse and child allowance at the appropriate rate.

The District Allowance is paid to employees on a fortnightly basis while they meet the eligibility criteria.

In most of the cases the District Allowance is paid to employees as a result of the employee working in a location due to the taxpayer initiated transfer.

If an employee qualifies for the provision, the taxpayer provides a "job required vehicle" (JRV) to perform their employment duties.

A JRV may be approved for an employee to utilise if they undertake significant motor vehicle travel as part of their position, where significant business related travel is required to be undertaken by that particular employee in performing their duties.

The Car Allowance is provided in lieu of a JRV by the taxpayer to certain employees to cover travelling/vehicle expenses and costs that the employee is expected to incur while performing his/her employment duties.

The amount of the Car Allowance is a predetermined amount based on an estimate of the expected 'whole of life' costs likely to be incurred in respect of the provision of the vehicle.

The quantum of the allowance may be based on the likely costs of the provision of a JRV, this is considered to be the best estimate of the costs the employee would incur in relation to undertaking the work required travel in employees' own vehicle.

Assumptions

The District Allowance is paid with an intention to cover additional costs the employee may incur as a result of the employees working in a remote location due to the taxpayer initiated transfer. It is expected that the employees will fully expend the money but not in relation to their employment duties.

The Car Allowance is paid to employees to cover travelling/vehicle expenses and costs, the employees are expected to incur while performing their employment duties. The taxpayer expects the employees will fully expend the expense.

Relevant legislative provisions

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

Reasons for decision

Summary

The District Allowance is paid to the employees when they are employed in the nominated branches. The allowance is a condition allowance which compensates employees for working in a remote area. The allowance is not expected to be expended in the course of employment; the payment is in respect of ordinary hours of work. The District Allowance forms part of the employees' OTE under subsection 6(1) of the SGAA.

The Car allowance is paid to the taxpayer's employees in recognition that this amount is to cover their estimated expenses of the running and maintenance of their vehicles, and is paid with the reasonable expectation that the allowance will be fully expended in deriving their assessable income. It is not considered to be earnings 'in respect of' the employees' ordinary hours of work, therefore it is not salary or wages and does not form part of the employees' OTE under subsection 6(1) of the SGAA.

Detailed reasoning

Definition of ordinary time earnings

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 for the quarter - 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.

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'.

Paragraphs 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state:

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 employees '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.

Paragraph 27 of SGR 2009/2 states that certain specific kinds of payments that are ordinary time earnings. Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. For an example, a site allowance paid fortnightly at a flat rate in acknowledgement of the displacement an employee undergoes when a job requires him or her to work in a remote location. The allowance is OTE except to the extent that it is not 'salary or wages', or relate solely to hours of work other than ordinary hours of work.

Paragraph 128 of SGR 2009/2 discusses conditions of work allowances that are not paid for any specific services provided by the employee, and are not expended in the course of the employee's work. These allowances are additional remuneration paid to the employee for work undertaken and are not specifically referable to overtime hours only. Therefore the allowance is an earning 'in respect of ordinary hours of work' and is OTE.

Paragraph 72 and 73 of SGR 2009/2 provides that certain payments are not 'salary and wages'

An expense allowance, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not 'salary or wages'.

A reimbursement that compensates an employee for an expense they have incurred on behalf of the employer is also not 'salary and wages'.

Paragraph 123 and 124 provides an example shows how the expense allowance is expected to be fully expended:

Matteo is an employee of JJ Investment Pty Ltd. In addition to his usual salary, Matteo is paid $300 per month to cover expenses he is expected to incur while visiting clients. The expenses Matteo incurs are for travel to client sites, maintenance of a mobile phone and internet access to remotely connect to the office. The allowance is a predetermined amount which has been calculated to cover the estimated expense and is given with the expectation that it will be fully expended in the course of the employee providing the services to the employer.

As the allowance is not a reward for the services which he is providing as an employee of the company, the payment is not considered to be 'salary or wages'.

Paragraph 125 states that a payment cannot be OTE unless it is 'salary or wages'. As Matteo's allowance is not 'salary or wages', it is not OTE.

District Allowance

The District Allowance is paid to taxpayer's employees when they work in nominated locations. They are paid when they are employed at the nominated branch during the period of employment. The taxpayer's employees receive this allowance when they perform their duties in their ordinary hours of work.

The taxpayer's employees will incur additional expenses when they work in the nominated locations and these locations usually are in a remote area. The District Allowance is earnings during the course of employment and is not expendable during working hours. As per paragraph 128 of SGR 2009/2, the allowance is not paid for any specific services provided by the employee, and is not expended in the course of the taxpayer's employees' work. This allowance is not specifically referable to overtime hours and are earnings 'in respect of ordinary hours of work' and therefore OTE.

Car allowance

The taxpayer provides employees a car allowance when they use their cars to perform their employment duties with an expectation that their employees will fully expend the allowance. As per SGR 2009/2 paragraph 72, allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not salary or wages.

The taxpayer uses an estimate from the taxpayer's fleet provider of the annual costs in respect of each JRV vehicle category - the annual costs are based on the whole of life costs (being the whole of lease life costs) for each of the approved vehicles and this is used as a guide to set the allowance amount for each vehicle category.

From the table provided by the taxpayer, most of the annual car allowances are less than the taxpayer lease car estimated annual costs. This supports that the taxpayer will expect employees to fully expend the expense when using their cars in the course of performing their duties. The example in paragraphs 123 and 124 of SGR 2009/2 provides that the allowance is a predetermined amount which has been calculated to cover the estimated expense and is given with the expectation that it will be fully expended in the course of the employees providing the client services. This allowance is not a reward for the services and is not considered 'salary and wages'. Paragraph 125 of SGR 2009/2 further confirms that this allowance is not OTE.