Edited version of private advice

Authorisation Number: 1051984445842

Date of advice: 20 May 2022

Ruling

Subject: Is annual leave loading ordinary time earnings and subject to superannuation guarantee?

Issue 1

Question

Does annual leave loading payable under the 2014 Enterprise Agreement (EA), the 2016 EA and the 2020 EA form part of the 'ordinary time earnings' for Group employees for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No.

Relevant facts and circumstances

Certain employees of the group under the Group Enterprise Agreement 2014 (2014 EA) and Group Enterprise Agreement 2016 (2016 EA) were eligible to receive 17.5% annual leave loading (ALL) on the terms set out in the 2014 and 2016 EAs.

In the Group Enterprise Agreement 2020 (2020 EA), the employing entity-specific divisions that existed in the 2014 EA and 2016 EA were removed. Accordingly, certain employees of those entities are eligible to receive 17.5% ALL if the 2020 EA applies to their employment arrangement on the terms set out in the 2020 EA.

For the purposes of this Application, the 2014 EA, 2016 EA and 2020 EAs are collectively referred to as the EAs.

For completeness, Group employees who are not casuals are entitled to overtime rates for work performed as overtime.

The group's 2019 and current Group Leave and Attendance Policy includes a statement that reflects the position that ALL is paid based on an employee's "Base Rate of Pay". It also specifies that ALL is for the loss of the opportunity to work overtime during periods of annual leave.

The 2014 EA and 2016 EA do not state why ALL is to be paid. The 2020 ALL states ALL is paid for a lost opportunity to work overtime.

Relevant legislative provisions

Subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992.

Superannuation on annual leave loading

Annual leave loading is included in ordinary time earnings (OTE) unless it is clearly linked to lost overtime.

Annual leave loading is an extra payment that may be paid to an employee on top of their base rate during periods of annual leave.

As an employer, you work out super guarantee payments for your employees based on their OTE. OTE includes annual leave but not overtime.

To omit annual leave loading from your employees' OTE, you need written evidence showing that the leave loading is linked to a lost opportunity to work overtime. This evidence can be either:

•         the relevant award or agreement

•         a documented policy, understood by you and your employees, that states the reason for the leave loading entitlement.

For the period from the formulation of the groups 2019 Group Leave and Attendance Policy there is written evidence showing that the leave loading is linked to a lost opportunity to work overtime. This is included in the 2019 Group Leave and Attendance Policy and subsequent policies as well as in the 2020 EA.

We note that the EAs and policy documents in force during the period between 9 October 2014 and the formulation of the groups 2019 Group Leave and Attendance Policy do not indicate why ALL was provided to employees. We also note that since the formulation of CBA's 2019 Group Leave and Attendance Policy, ALL is demonstrably referable to a lost opportunity to work overtime.

In light of this, and based on the group EAs, the Commissioner will also accept that ALL was referable to a lost opportunity to work overtime for the period beginning 9 October 2014 until the formulation of groups 2019 Group Leave and Attendance Policy.