Edited version of private advice

Authorisation Number: 1052186179979

Date of advice: 16 November 2023

Ruling

Subject: Superannuation guarantee on lump sum

Question

Does the undefined payment in settlement of a dispute between the Employer and their former Employee, form part of the employees' ordinary times earnings (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No.

This advice applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

24 July 2023

Relevant facts and circumstances

The Employer is in the hospitality business.

The former Employee worked for the Employer for a period of 5 ½ years.

The Employer and the former Employee were in dispute over the hours worked and the correct rate of pay.

Proceedings commenced in the Court for underpayment of wages, non-payment of accrued annual leave, and penalties under the Fair Work Act 2009 (Cth) and non-payment of long-service leave under the Long Service Leave Act 1958 (WA).

The total underpayments as calculated by the Employee are as follows:

•         salary wages ranging between $XXX,XXX and $XXX,XXX (depending on which industry award is deemed correct).

•         personal leave is $X,XXX

•         long service leave is $XX,XXX

The Employer and former Employee have jointly consented to judgment in an all-inclusive, undifferentiated amount of $XXX,XXX.

The Employer has provided a copy of the court orders dated XX XXXX 2023 stating that the judgement for the claimant, in the amount of $XXX,XXX, is in satisfaction of all claims in the proceedings.

Relevant legislative provisions

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

Reasons for decision

Summary

As the settlement payment amount is undissected, it does not contain an identifiable and quantifiable amount of unpaid salary or wages. Therefore, as the whole amount is not salary and wages, it is not categorized as OTE and consequently the Employer has no SG liability in relation to the settlement payment.

Detailed reasoning

Ordinary time earnings

All Employers need to calculate their SG liability against an Employee's OTE as defined in the SGAA.

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' (SGR 2009/2).

Undissected Settlement Payment

The SGAA does not define the expression OTE; however, paragraph 12 of the ruling giving the meaning of earnings as:

12. An employee's 'earnings', for the purpose of the definition of OTE, is the remuneration paid to the employee as a reward for the employee's services. The practical effect for superannuation guarantee purposes is that the expression 'earnings' means 'salary or wages'.

Certain payments that are 'salary or wages' are defined in SGR 2009/2. Specifically addressed in paragraph 70 of the ruling are payments in settlement of a dispute.

Paragraph 70 states:

70. If unpaid salary or wages are recovered by way of a settlement of a debt via court order, out-of-court settlement or negotiated settlement, and that settlement contains an identifiable and quantifiable amount of unpaid salary or wages, that amount retains its character as 'salary or wages' for SGAA purposes. However when the amount is undissected, the whole amount is not salary or wages.

Conclusion

The sealed court order shows that the Employer needs to pay the claimant (former Employee) $XXX,XXX. The court order does not quantify the payment. This clearly categorises the settlement payment as undissected and as it does not identify or qualify any dissected amount that would have the character of salary and wages, and consequently the whole amount is excluded from being salary and wages. It follows therefore that as the payment is not OTE there is no SG liability for the Employer.