Edited version of private advice

Authorisation Number: 1052000578303

Date of advice: 2 August 2022

Ruling

Subject: SG contributions - overtime hours worked

Question

Are SG contributions required under the SGAA on any overtime hours worked (pursuant to clause X in the Enterprise Agreement ("EA")), where those hours are counted towards an employee's guaranteed minimum fortnightly hours under clause Y of the EA?

Answer

No

This ruling applies for the following period:

30 June 2023

The scheme commences on:

10 September 2020

Relevant facts and circumstances

The company's employees are engaged under the Enterprise Agreement 2019 ("EA").

Employees are paid fortnightly, pursuant to a clause of the EA.

Per clauses X and Y, the ordinary hours of work for full-time Operations and Administrative employees is expected to be 76 hours per fortnight. Which is 38 hours per week or an average of 38 hours per week over an agreed period. The ordinary hours may be worked 24 hours a day, seven days a week.

Any hours worked in excess of the maximum ordinary hours per day or shift (being eight hours in accordance with clause X) or any hours exceeding an average of 38 ordinary hours per week are considered overtime. Employees are paid at relevant overtime rates for overtime hours worked.

The EA also contains a clause that guarantees a minimum amount of pay across a fortnightly pay period, for particular employees covered by the EA. Where employees are available to work the 76 ordinary hours in a particular fortnight but do not do so, the EA provides that they will nonetheless be paid for those hours in certain circumstances, by calculating the shortfall in hours worked across that fortnight.

While employees are generally entitled to additional pay under clause X for any shortfall in the minimum payment due during the fortnightly pay period, for certain employees, any overtime hours worked (during the fortnight) are also taken into account when calculating the minimum guarantee shortfall for the fortnight.

Clause A states '...Employees to whom this Part of this Agreement applies and who are ready, willing and available to perform all work offered shall be paid each fortnight an amount equivalent to the number of hours prescribed in this Agreement for each classification at the Ordinary Rate of Pay within the first ten shifts each fortnight...'

Per clause Z overtime is all worked in excess of the maximum ordinary hours of work for a shift or in excess of the 38 ordinary hours per week.

Taxpayer contentions

The 'guaranteed fortnight' clause guarantees a minimum amount of pay across a fortnightly pay period for particular employees covered by the EA. Where employees are available to work the 76 ordinary hours but do not do so, the EA provides that they will nonetheless be paid for those hours in certain circumstances, by calculating the shortfall in hours worked across that fortnight.

While employees are generally entitled to additional pay under clause x for any shortfall in the minimum payment due during the fortnightly pay period, for certain employees, any overtime hours worked (during the fortnight) are also taken into account when calculating the minimum guarantee shortfall for the fortnight.

For example, if an employee in a certain class was to work 66 ordinary hours and four overtime hours during a fortnight, they would be paid for an additional four ordinary hours for that fortnight in accordance with clause x, to bring them up to their minimum/equivalent of 76 hours at their ordinary rate for the fortnight. The breakdown is as follows:

Relevant legislative provisions

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

ATO view documents

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee- meaning of the terms " ordinary time earning" and "salary or wages"

Reasons for decision

Summary

Overtime hours, as defined by the EA under clause X are not included as OTE and therefore the company is not liable to make SG contributions in relation to these payments. Clause Y deems 'overtime hours' as 'ordinary hours' for the purpose of calculating a guaranteed minimum payments to be made to the employee. This 'deeming' is merely for calculation purposes and does not detract from the character of them being 'overtime hours', as stipulated in clause Z of the EA. The company is therefore not liable to make SG payments on any overtime hours worked, including those used for calculation in clause A.

Detailed reasoning

Overtime Hours as defined by Clause X

As per para 41 of SGR 2009/2, payments for work performed during hours outside an employee's ordinary hours of work are not OTE. Therefore, to define 'overtime hours', the EA must first define 'ordinary hours'. 'Ordinary hours' are defined in clause Y of the EA as 38 hours per week or an average of 38 per week over an agreed period. With the hours able to be worked 24 hours a day, seven days a week. The ordinary hours per fortnight are therefore 76 hours. As 'ordinary hours' have been sufficiently defined in the EA, overtime can be successfully identified as any hours worked outside of these hours. For clarification, clause X of the EA defines 'overtime' as all time worked in excess of an average of 38 ordinary hours per week and therefore 76 hours per fortnight. This clause also defines overtime as all time worked in excess of the maximum ordinary hours of work in a day or shift, being eight hours as per clause Y. Overtime hours are therefore sufficiently identified in the EA through clause Y defining 'ordinary hours' and clause X defining 'overtime' (in accordance with clause Z), with such overtime hours not being OTE and therefore not having SG payable on them.

'Guaranteed fortnight' as per clause X

This clause 'guarantees a minimum amount of pay across a fortnightly pay period for particular employees covered by the EA. Where employees are available to work the 76 ordinary hours but do not do so, the EA provides that they will nonetheless be paid for those hours in certain circumstances, by calculating the shortfall in hours worked across that fortnight. We agree that this is an accurate summary of how clause X operates. The most relevant part of clause X to the question is X(a), where overtime worked by a particular class of employees or during Saturday, Public Holidays or Sunday time are included in the guaranteed fortnight calculation of 76 hours.

Construing the terms of A, employees being paid each fortnight 'an amount equivalent to the number of hours prescribed in the EA at the Ordinary Rate of Pay within the first ten shifts each fortnight' means that overtime hours will be deemed as 'ordinary hours' on this 'equivalency' basis. For example, 1.5 ordinary hours for an hour of overtime paid at 1.5 times the Ordinary Rate of Pay. In the example you have used, you have therefore successfully applied this 'deeming' of overtime hours as ordinary hours in the guarantee calculation.

Does the 'deeming' of overtime hours worked as 'ordinary hours' under clause X detract from their character of being actual 'overtime hours'?

In the EA, 'overtime hours' are essentially split into two uses: The first being the actual 'overtime hours' worked by the employee that falls outside of 'ordinary hours' and being paid at the relevant Overtime Rate of Pay (as per clauses X and Y respectively). The second use is one that arises for a specific purpose and only when overtime is worked by a particular class of employees and for Saturday time, Public Holidays and Sunday time. This second use arises only to be used to calculate the minimum guaranteed fortnight as per clause X. Therefore, this second use of 'ordinary hours' is only utilising the equivalency of overtime hours and not changing the entire character of them, such as 1.5 ordinary hours equating to one hour of overtime worked at time-and-a-half. As such, this 'second use' of overtime hours in no way detracts from the underlying nature and practical, worked nature of overtime hours defined in clause Y. For the purpose of calculating an employee's guaranteed minimum fortnightly hours in clause X, overtime hours worked (pursuant to clause Y in the EA) do therefore not require SG contributions to be made on them.