Edited version of private advice

Authorisation Number: 1051790836033

Date of advice: 17 February 2021

Ruling

Subject: Ordinary time earnings (OTE)

Question 1

Are earnings for work performed at times outside of the "ordinary hours" bandwidth, defined in the Award 2020, earnings "in respect of ordinary hours of work" under subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No

This ruling applies for the following period(s)

1 July 20XX - 30 June 20XX

The scheme commences on

The arrangement is already in place.

Relevant facts and circumstances

The Company employs drivers who are engaged in the transport and distribution of products.

The Award covers employers throughout Australia in the road, transport and distribution industry.

The Award includes the classification of "driver".

The Award contains clause 14 "Ordinary Hours of Work and Roster Cycles

The Award also contains clause 21 "Overtime".

Employees of the company are required to load and deliver product during normal business hours, as well as evenings, early mornings and on weekends.

The employees work at least 35 hours per week, and often more than 35 hours each week. But in any week, an employee may work fewer than 35 hours per week between 6:30am and 5:30pm Monday to Friday.

These employees are subject to an employment contract.

The company pays the employees at a higher rate for all hours worked.

The company provides a payslip to each employee which identifies:

(a) earnings referrable to hours worked in accordance with Clause 14; and

(b) earnings referrable to hours worked in accordance with Clause 21.

Clause 20.1 of the Award provides that employer and employee superannuation rights and obligations are governed by the SGAA.

Relevant legislative provisions

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

Summary

Detailed reasoning

The SGAA states that an employer must provide the prescribed minimum level of superannuation support for its eligible employees by the quarterly due date or pay the superannuation guarantee charge (SGC). The minimum level of support is calculated by multiplying the charge percentage by each employee's earnings base.

From 1 July 2008 an employer must use OTE as defined in subsection 6(1) of the SGAA as the earnings base to calculate the minimum superannuation contributions for their employees. This ensures that all employees are treated the same for superannuation purposes.

Definition of ordinary times earnings

OTE, in relation to an employee, is defined in subsection 6(1) of the SGAA. It refers to the lesser of:

•         the total of the employee's earnings in respect of ordinary hours of work (other than lump sum payments made on termination of employment in lieu of unused sick leave, long service leave or annual leave) and earnings consisting of over-award payments, shift-loading or commission, or

•         the maximum contribution base for the contribution period.

The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression.

The Commissioner's views on OTE, as defined in the SGAA, including information on the difference between allowances, expense allowances and reimbursements, are contained in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2) which is effective from 1 July 2009.

OTE is generally what employees earn for their ordinary hours of work, including commissions, allowances (excluding expense allowances) and paid leave and do not include reimbursements or overtime payments.

Ordinary hours of work

The meaning of 'ordinary hours of work' is discussed in SGR 2009/2 to be an employee's 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.

An employee's ordinary hours of work are distinct from 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.

Any hours worked in excess of those standard hours set out in an award or agreement, are not generally 'ordinary hours of work'. However, if it is evident from an objective assessment of the employee's regular work pattern, that the hours actually worked are consistently different to those prescribed as 'standard', the 'ordinary hours of work' for that employee may be determined based on that regular work pattern.

'Ordinary hours of work' are not limited to hours to be worked between 9am and 5pm, Monday to Friday as 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.

The ordinary hours of work for employees that are employed under the Award you have specified is as follows:

To constitute OTE, a payment must be made with respect to an employee's ordinary hours of work. That is, it must be paid for attendance or work done by the employee in those hours, or to satisfy an entitlement that accrued as a result of them attending or working in those hours.

Earnings 'in respect of ordinary hours of work' means all earnings other than overtime

For a payment to constitute earnings in respect of ordinary hours of work the payment must be considered earnings of the employee and the earnings must be in respect of the employee's ordinary hours of work.

An employee's earnings for the purposes of the definition of OTE in the SGAA is the remuneration paid to the employee as reward for the employee's services.

Paragraph 25 of SGR 2009/2 states that 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.

Application to your circumstances:

In your case you have an Agreement which stipulates what the ordinary hours are for your employees. The Agreement states that ordinary hours are a maximum of 35 hours per week or 70 hours per two-week period, between 6.30am and 5.30pm Monday to Friday. The agreement further states that any hours over the ordinary hours will be remunerated at a higher 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 or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours. Therefore, these hours are considered overtime hours.

However, in your case the employment contract, stipulates that the rate of pay for ordinary hours is the same for additional hours. The pay slip provided indicates that overtime hours are identifiable as a separate component of the total pay.

The focus of the definition of OTE in subsection 6(1) of the SGAA is upon the hours worked and not upon any special rates of pay received. The payment of overtime rates makes it easier to distinguish between ordinary hours of work and overtime but the fundamental question that still remains is whether the remuneration is in respect of ordinary hours of work. The agreement makes it clear, that the ordinary hours of work are 35 hours per week or 70 hours per two-week period.

The company pays a fixed rate of pay for all hours worked regardless of whether they are ordinary hours or overtime hours. Therefore, whilst the overtime hourly rate is not at a higher rate than ordinary hourly rate, it is expressly referable to overtime hours as remuneration for overtime hours worked (i.e. any hours worked in excess of the 35 hours per week are overtime or other hours and not ordinary hours) and it is at a rate that is higher than the ordinary rate contained in the Award. Therefore, the payment for those hours does not form part of OTE for the purposes of subsection 6(1) of the SGAA.

It follows that the minimum level of superannuation contribution required by the company to avoid the imposition of a superannuation guarantee charge is 9.5% of the earnings referrable to hours worked within the definition of ordinary hours under the Award.