Edited version of administratively binding advice

Authorisation Number: 1052165034006

Date of advice: 8 February 2024

Ruling

Subject: Ordinary time earnings

Question

Is the conditional payment made by the employer ordinary time earnings (OTE) as defined by subsection 6(1) of the Superannuation Guarantee (Administrative) Act 1992 (SGAA)?

Answer

Yes.

This advice applies for the following period:

1 July 20YY to 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

The employer is a processing facility which, in addition to a guaranteed daily payment, pays a bonus payment and a conditional payment.

All payments made are earnings in respect of the ordinary hours of work.

Relevant legislative provisions

SGR 2009/2

SGAA subsection 6(1)

Reasons for decision

SGAA subsection 6(1) provides that OTE in relation to an employee includes relevantly:

a)            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:

i)             A payment in lieu of unused sick leave;

ii)            An unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997;

b)            Earnings consisting of over award payments, shift loading or commission.

The SGAA does not define the expression earnings in respect of ordinary hours of work. Superannuation Guarantee Ruling SGR 2009/2 Superannuation Guarantee: meaning of the terms 'ordinary time earnings and 'salary and wages' explains the meaning of the expression in a number of contexts.

Relevant sections of the SGR 2009/2 are found under paragraphs 13 to 18 and paragraph 25:

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.

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

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 of employment generally and are not OTE because they are not in respect of any particular hours of work.

Sections of the SGR 2009/2 relating to 'piece rates' were identified and quoted as paragraphs 30 to 31:

Piece-rates

30. Unless an employee is subject to an award or agreement that specifies the employee's ordinary hours of work, all wage payments made on a piece-rate basis are included in an employee's OTE. As the number of units or items completed is the basis for calculating the payment, the hours actually worked that resulted in the completion of the units or items are the employee's 'ordinary hours of work'.

31. If the employee is subject to an award or agreement that specifies their ordinary hours, then the employee's earnings in respect of those hours must be determined having regard to the relevant provisions of the award or agreement.

In this case, regardless of the use of a piece rate for calculation purposes, there is nothing that provides an alteration to the ordinary hours of work.

The employees are entitled to receive bonus payments during their ordinary hours of work (7.6 hours shift).

SGR 2009/2 paragraph 28 relevantly provides in relation to the funds received by employees by way of bonus payments as:

28. Additional earnings received as a reward for good performance, and other like 'bonus' payments, are OTE in most cases. Exceptionally, a discrete and clearly identifiable bonus payment may relate solely to work performed entirely outside of ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to in non-ordinary hours.

In summary, an employee may receive a guaranteed daily payment, a bonus payment and a conditional payment during a 7.6 ordinary hour work shift.

SGR 2009/2 paragraph 25 relevantly states:

25. All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remunerated 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 of employment generally and are not OTE because they are not in respect of any particular hours of work.

SGR 2009/2 paragraph 226 relevantly provides (emphasis added):

226. The Commissioner does not consider that the services or attendance of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours' and therefore OTE. The Commissioner's view is that the expression 'in respect of ordinary hours of work' was intended to ensure that overtime payments, and cognate amounts, were excluded from the earnings base. It was not intended to exclude amounts paid at a worker's ordinary time rate solely on the ground that they were not earned as a direct result of actually working particular hours in ordinary time.

The emphasis in this paragraph is to draw attention to the fact that the services provided, or otherwise, by an employee during their ordinary hours of work cannot be excluded from OTE purely because '...they were not earned as a direct result of actually working particular hours in ordinary time.'

The Commissioner is of the opinion that all 3 of these types of payments are OTE. The substitution of a conditional payment for other forms of OTE does not convert the conditional payment which has arisen during the employee's ordinary hours of work to non-ordinary hours of work. Therefore, the 3 payments, the guaranteed daily payment, the bonus payment and the conditional payment, are OTE, and are subject to superannuation guarantee payment.