Edited version of private advice

Authorisation Number: 1052191798059

Date of advice: 20 December 2023

Ruling

Subject: Status of the worker and ordinary time earnings

Question 1

Are Members (and acting members) of the Commission and Committee, employees of the Entity under subsection 12(9) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes.

Question 2

Are sitting fees paid directly to the Members who are then required to transfer these to their nominating employer, considered to be remuneration to the Members under the relevant legislation, and also 'salary or wages', and therefore 'ordinary time earnings' under subsection 6(1) of the SGAA?

Answer

No, as where the Members are required to transfer these fees to their nominating employer, these fees would be akin to expense allowances and so would not be 'salary or wages' and therefore not ordinary time earnings, for superannuation guarantee purposes.

This advice applies for the following periods:

1 July 2021 to 30 June 2028

The arrangement commenced on:

1 July 2021

Relevant facts and circumstances

The applicant provided supporting information and legislation that explains the appointment, roles and duties of the Members of the Commission and Committee.

Relevant legislative provisions and ATO views

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

Superannuation Guarantee (Administration) Act 1992 subsection 11(1)

Superannuation Guarantee (Administration) Act 1992 section 12

Work, Health and Safety Act 2020 (WA) section 4

Work, Health and Safety Act 2020 (WA) Schedule 1 clause 9

Work, Health and Safety Act 2020 (WA) Schedule 1 sub-clause 14(2)

Work, Health and Safety Act 2020 (WA) Schedule 1 sub-clause 14(3)

Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/1).

Taxation Ruling IT 2014 Fees paid to members of government commissions or councils - requirement on member to pay fees to employer.

Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Reasons for Decision

These reasons for decision accompany the Notice of advice for the Entity.

This is to explain how we reached our decision. This is not part of the advice.

Issue

Status of the worker and ordinary time earnings

Question 1

Are Members (and acting members) of either the Commission or the Committee, employees of the Entity under subsection 12(9) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Summary

Members (and acting members) of either the Commission or the Committee are considered to be office holders and consequently employees of the Entity under subsection 12(9) of the SGAA.

Detailed reasoning

The classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law employment relationship. While the definition includes persons who at common law would be regarded as employees, it also extends to other members and persons as follows.

Section 12 of the SGAA states:

SECTION 12 INTERPRETATION: EMPLOYEE, EMPLOYER

12(1) Definitions

Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons.

...

12(9) [ Employees of Commonwealth, State, Territory]

A person who:

(a) holds, or performs the duties of, an appointment, office or position under the Constitution or under a law of the Commonwealth, of a State or of a Territory; or

(b) is otherwise in the service of the Commonwealth, of a State or of a Territory (including service as a member of the Defence Force or as a member of a police force);

is an employee of the Commonwealth, the State or the Territory, as the case requires. However, this rule does not apply to a person in the capacity of the holder of an office as a member of a local government council.

Taxation Ruling TR 2002/21 Income tax: Pay As You Go (PAYG) Withholding from salary, wages, commissions, bonuses or allowances paid to officers (TR 2002/21) discusses PAYG withholding from salary, wages, commissions, bonuses or allowances paid to office holders.

Paragraph 90 of SGR 2005/1 - Superannuation guarantee: who is an employee states:

90. The wording in subsection 12(9) of the SGAA is very similar to the wording contained in paragraphs 12-45(1)(b), (c), and (d) in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Taxation Ruling TR 2002/21 provides comprehensive guidance on the interpretation of the wording contained in those paragraphs. A similar interpretation applies for the purposes of interpreting subsection 12(9) of the SGAA.

An office holder is a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law.

Paragraph 14 of TR 2002/21 provides that an individual is considered to be appointed or engaged under an Act where it can be identified in the relevant legislation or statutory instrument that either:

•         the particular office, position or appointment or

•         the constitution of the relevant body (such as a panel, board committee or tribunal) to which the individual has been appointed

Further, paragraph 15 of TR 2002/21 states that the appointment, office or position must also exhibit the following characteristics of an office holder:

•         independent existence: The office must exist regardless of the individual who occupies the office from time to time - that is, if the individual currently occupying the office vacates that office, the office must continue to exist to be filled by another individual

•         duties, functions, responsibilities or powers: The office must have identifiable duties, functions, responsibilities or powers other than a mere advisory function. These features of the office (or of the panel, board, committee or tribunal to which the individual has been appointed) would usually be specified in the relevant legislation or statutory instrument

•         the relevant duties, functions, responsibilities or powers must attach to the office itself, rather than the individual who occupies the office.

As provided in paragraph 98 of TR 2002/21, where an Act provides that a Minister may appoint such persons as are necessary for the effective administration of the Act and states the functions and powers of appointment and sets out the tenure of their appointment, then remuneration of that individual would be considered to be covered by paragraph 12-45(1)(b) of Schedule 1 to the TAA.

That is, it is not necessary for the Act to specify a particular number of positions so long as there is an identified mode of appointment so that the positions are clearly identifiable, have an independent existence and have independent duties, functions or powers attached.

Application to the Members of the Commission and Committee

The provided information supports that the Members meet the condition of being 'a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law'.

Conclusion

As Members (and acting members) are considered to be office holders, they are employees of the Entity by virtue of paragraph 12(9)(a) of the SGAA.

Question 2

Are sitting fees paid directly to the Members who are then required to transfer these to their nominating employer, considered to be remuneration to the Members under the relevant legislation, and also 'salary or wages', and therefore 'ordinary time earnings' under subsection 6(1) of the SGAA?

Summary

Sitting fees paid directly to the Members who are then required to transfer these to their nominating employer would be akin to expense allowances and so would not be 'salary or wages' and therefore not ordinary time earnings, for superannuation guarantee purposes.

Definitions and applicable law

Sitting fees

The Work Health and Safety Act 2020 (WHS Act) is the enabling legislation that sets out the appointment of members to the Commissions and their pay; although 'sitting fees' is not a defined term within the legislation, sub-clause 14(2) in Schedule 1 to the WHS Act states that 'an appointed member who is not a public service officer is entitled to the remuneration'.

Section 4 of the WHS Act states that 'remuneration' within the Act is given the meaning provided in subsection 4(1) of the Salaries and Allowances Act 1975 (WA) (the Salaries and Allowances Act).

Subsection 4(1) of the Salaries and Allowances Act defines 'remuneration' to include 'salary, allowances, fees, emoluments and benefits (whether in money or not)'.

It is important to note that the appointed Members are 'entitled' to remuneration; 'entitle' is defined in the Macquarie Dictionary to mean 'to give (a person or thing) a title, right or claim to something; furnish with grounds for laying claim.'

Paragraph 113 of Taxation Ruling TR 2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice arrangements (TR 2001/1) states that:

once an employee becomes entitled to receive an amount of salary or wages, the payment of that entitlement is a payment of salary or wages.

However, the above determination is made in relation to the definition of 'salary or wages' within the Fringe Benefits Tax Assessment Act 1986. Therefore, although persuasive, this does not necessarily mean that an entitlement to receive an amount would be 'salary or wages' for the purposes of the SGAA. It would thus be best to rely upon the ordinary meaning of 'entitlement' to determine the meaning of the sub-clause.

Sub-clause 14(2) of the WHS Act defines 'sitting fees' to be the right given to certain Members to receive payments considered to be 'salary, allowances, fees, emoluments and benefits'.

Ordinary time earnings

'Ordinary time earnings' (OTE) are defined in subsection 6(1) of the SGAA to mean:

ordinary time earnings, in relation to an employee, means:

(a) the total of:

(i) 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:

(A) a payment in lieu of unused sick leave;

(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and

(ii) earnings consisting of over-award payments, shift-loading or commission; or

(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter-the maximum contribution base.

Further clarification is provided in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2). Paragraph 7 of SGR 2009/2 specifies that an amount can only be considered to be OTE if it meets the definition of 'salary or wages', although the opposite does not apply.

'Salary or wages' is defined in subsection 11(1) of the SGAA:

In this Act, salary or wages includes:

(a) commission; and

(b) payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate; and

(ba) payments under a contract referred to in subsection 12(3) that are made in respect of the labour of the person working under the contract; and

(c) remuneration of a member of the Parliament of the Commonwealth or a State or the Legislative Assembly of a Territory; and

(d) payments to a person for work referred to in subsection 12(8); and

(e) remuneration of a person referred to in subsection 12(9) or (10).

Paragraph 11 of SGR 2009/2 provides that the expression 'earnings in respect of ordinary hours of work' is not defined within the SGAA, and so provides clarification for both 'earnings' and 'ordinary hours of work' within the SGR.

Payment process

There seems to be an important distinction between the process envisioned by the legislation, and the practical application of this process. Paragraph 14(3)(b) of the WHS Act seems to contemplate that payment is made directly to the nominating body, whereas documentation provided by the Entity states that payments are first made to the Members, who then transfer these amounts to the nominating bodies.

Each process will be treated separately to determine whether sitting fees, whether paid directly to the nominating body, or transferred from the Member to the nominating body, would meet the legislative definition of 'ordinary time earnings'.

Earnings

Paragraph 12 of SGR 2009/2 defines 'earnings', for the purposes of OTE, to be 'remuneration paid to the employee as a reward for the employee's services.'

Remuneration

SGR 2009/2 does not provide a specific definition for the term 'remuneration' so regard must be had to additional materials.

Detailed reasoning

By electing the nominating employer to receive the payment, the Member is waiving their entitlement to remuneration.

Payment made directly to the nominating employer

Sub-clause 14(2) of the WHS Act defines 'sitting fees' to be the 'entitlement to the remuneration' paid to certain appointed members, with remuneration referring to payments such as salaries and allowances, so it could be likely that 'sitting fees' within the enabling legislation would be equivalent to 'remuneration' for the purposes of defining 'ordinary time earnings.'

However, sub-clause 14(3) of the WHS Act includes slightly different wording where the payment is made to the nominating body:

(3) In the case of an appointed member under clause 10(2)(d)(i), (ii) or (iv), the member may, by notice to the Minister -

(a) waive their entitlement to remuneration; and

(b) elect for any amounts that would otherwise be payable to the member to be paid instead as a fee to the body that nominated the member.

Paragraph 14(3)(a) of the WHS Act specifies that, by electing the nominating body to receive the payment, the Member is waiving their entitlement to remuneration.

'Waive' is defined by the Macquarie Dictionary to mean, in the legal sense, 'to relinquish (a known right, etc.) intentionally'. Accordingly, by operating under this sub-clause of the WHS Act, a Member is giving up their right to receive payments equivalent to salaries or allowances. Consequently, the Member is relinquishing their right to receive remuneration, and it could be said that this first component of the definition of 'earnings' under SGR 2009/2 may not be met.

Paragraph 14(3)(b) of the WHS states that certain appointed members may:

(b) elect for any amounts that would otherwise be payable to the member to be paid instead as a fee to the body that nominated the member.

The legislation uses the word 'fee' to refer to the payment of the 'sitting fees' amount to the nominating body, rather than 'remuneration'. Interestingly, the definition of 'remuneration' in subsection 4(1) of the Salaries and Allowances Act includes 'fees', so there is a possibility that the word 'fee' could be exchanged for 'remuneration' within the legislation and be applicable.

Nevertheless, the legislation seems to contemplate that the amount paid to the nominating body would not be classified as 'remuneration' in the same way as 'remuneration' paid to the Member. This approachseems to be supported by the Explanatory Memorandum for the Work Health and Safety Bill 2019 (WA); paragraph 967 specifies that:

A member who waives their entitlement may elect for an amount equal to the waived entitlement, be paid instead to the body that nominated them as a fee.

The Explanatory Memorandum and the enabling legislation both seem to contemplate that it is not the actual 'sitting fee', being the remuneration that the Member is entitled to, that is paid to the nominating body, but an amount equivalent to the 'sitting fee' that is instead paid as a 'fee'.

Therefore, the intention reflected in the legislation and the explanatory materials seems to contemplate that the amount paid directly to the nominating body or employer is not 'remuneration' within the context of SGR 2009/2, as it is an equivalent amount paid to the nominating body rather than the 'sitting fees' themselves.

Payment transferred to the nominating employer

Taxation Ruling IT 2014 Fees paid to members of government commissions or councils - requirement on member to pay fees to employer (IT 2014) provides guidance regarding the taxation treatment of sitting fees where the Members are initially in receipt of the sitting fees

Paragraph 3 of IT 2014 states that sitting fees will 'form part of the assessable income of the recipient member'. Coupled with the definition of 'sitting fees' under sub-clause 14(2) of the WHS Act being the right given to certain Members to receive payments akin to salary and allowances, this makes clear that sitting fees, where paid initially to the Member, would be 'remuneration' for the purposes of SGR 2009/2 and ultimately, 'ordinary time earnings.'

Payment paid to the employee

As it has been determined that sitting fees paid directly to the nominating employer would not meet the definition of 'remuneration' under SGR 2009/2, only the circumstances in which sitting fees are paid to the Member and then transferred to the nominating employer need to be considered.

'Paid to the employee', is an important phrase within the definition of 'earnings' provided in paragraph 12 of SGR 2009/2; in this case, 'sitting fees' ultimately end up in the hands of the nominating body, so the question is whether payment is actually rendered to the Members themselves, and therefore ultimately meets the definition of 'ordinary time earnings'.

In this case, payments are first paid to the Member, and so it could be determined that this component of the definition of earnings had been satisfied.

Employee

The next component to the definition of 'earnings' within paragraph 12 of SGR 2009/2 is that the payment is made to an employee.

An 'employee' is defined in section 12 of the SGAA to include the ordinary meaning of the term, within the common law, as well as certain extended definitions. In particular, subsection 12(9) of the SGAA states that an individual is an employee for the purposes of the SGAA if they are:

A person who:

(a) holds, or performs the duties of, an appointment, office or position under the Constitution or under a law of the Commonwealth, of a State or of a Territory; or

(b) is otherwise in the service of the Commonwealth, of a State or of a Territory (including service as a member of the Defence Force or as a member of a police force);

is an employee of the Commonwealth, the State or the Territory, as the case requires. However, this rule does not apply to a person in the capacity of the holder of an office as a member of a local government council.

Clause 9 of the WHS Act defines 'appointed members' to mean those Members of the Commission appointed under paragraphs 10(2)(a) or (d) of the Act. Paragraph 10(2)(d) of the WHS Act includes those Members who are entitled to remuneration, meaning that these individuals are those persons holding an appointment under Western Australian legislation.

Additionally, although not determinative, Taxation Ruling IT 2014 Fees paid to members of government commissions or councils - requirement on member to pay fees to employer (IT 2014), refers to Commission Members as 'employee members' in paragraph 2 of the ruling.

Therefore, the Members of the Commission would be employees for the purposes of the SGAA and under SGR 2009/2.

Reward for services

Paragraph 3 of IT 2014 has highlighted that sitting fees paid to a Member form part of their assessable income, but makes clear that the taxation treatment is different where the sitting fees are transferred to the Member's employer or nominating body:

Where, however, a member is required to pay over all or part of the sitting fees to the principal employer as a condition of his employment or to reimburse the employer for time taken off from normal duties in order to attend meetings, the amounts so paid represent losses or outgoings incurred in gaining or producing the member's assessable income.

The operative phrase of the above paragraph is that sitting fees transferred to a Member's employer are done so 'as a condition of his employment or to reimburse the employer for time taken off from normal duties in order to attend meetings.' This demonstrates that the transfer of the sitting fees to the nominating employer is not transferring an amount that was gained in exchange for the Member's services, but transferring an amount that is owed to the nominating employer either under the Member's contract or as a reimbursement.

Therefore, there is no 'reward for services' contemplated by paragraph 3 of IT 2014 where sitting fees are transferred from the Member to their nominating employer; instead, the sitting fees in these circumstances are more akin to an expense allowance in paragraph 266 of SGR 2009/2.

Paragraph 266 of SGR 2009/2 defines an expense allowance to be:

an allowance which is paid with the reasonable expectation that the money will be fully expended by the employee in the course of providing their services.

Sitting fees, where transferred to the nominating employer are similar in that they are paid with the reasonable expectation that the nominating employer will receive the full amount in exchange for the Member taking time from their regular duties to attend Commission meetings and the like.

Paragraph 46 of SGR 2009/2 determines that expense allowances and reimbursements of expenses incurred for the employer would not be considered 'salary or wages', and would therefore not be 'ordinary time earnings'. Paragraph 3 of IT 2014 makes clear that sitting fees, where transferred to the nominating employer are done so to reimburse the nominating employer for time taken off to attend to Commission duties.

Therefore, where sitting fees are transferred from the Member to their nominating employer, this is an expense allowance, where the nominating employer is reimbursed for the Member's leave from work to attend to Commission duties, rather than a reward for the Member's services. As sitting fees in these circumstances are akin to expense allowances, they are not considered 'salary or wages', and therefore not 'ordinary time earnings', for SG purposes.

Ordinary hours of work

Although it has been determined that sitting fees will not meet the definition of 'earnings' under SGR 2009/2 for the purposes of meeting the legislative definition for 'ordinary time earnings', it is important to finalise the discussion in considering whether sitting fees would meet the secondary component of the definition, being 'ordinary hours of work'.

The documentation provided states that it is considered a 'normal part of the employee's duties' to attend Commission meetings.

Paragraph 16 of SGR 2009/2 states that 'ordinary hours of work' will include the 'normal, regular, usual or customary hours worked by the employee', where the ordinary hours of work are not specified in the employee's award or agreement.

As attendance at Commission meetings is considered to form part of an employee's 'normal' duties, it is likely that these earnings have been incurred 'in respect of ordinary hours of work'.

Conclusion

If the sitting fees were paid directly to the nominating employer, the fees would not be considered to be remuneration to the Members under relevant legislation, and so would not be 'salary or wages', and therefore not 'ordinary time earnings', for SG purposes.

Sitting fees that were paid directly to the Members would be 'salary or wages', and also 'ordinary time earnings' for SG purposes.

However, where the Members are required to pay the fees to their nominating employer, these fees would be akin to expense allowances and so would not be 'salary or wages', and therefore not 'ordinary time earnings', for SG purposes.