Edited version of private advice

Authorisation Number: 1052236136859

Date of advice: 15 April 2024

Ruling

Subject: Superannuation guarantee - ordinary time earnings

Question

Does the bonus paid to the employees in lieu of overtime form part of 'ordinary time earnings' (OTE) for the purposes of subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

Yes, the bonus paid forms part of the employees OTE for the purposes of subsection 6(1) of the SGAA.

This advice applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

X Trust (Taxpayer) is an entity which carried on X Pty Ltd (Business).

The Taxpayer employed staff as part of the Business.

In 20XX the Business decided to elect key employees to collectively manage the Business. The key employees were known as the X Team and consisted of four members; they were referred to as the X members.

The employees were already employed in accordance with existing agreements in respect to their general duties, an example employment agreement was supplied for one employee however no agreement or documentation has been supplied for the remaining three employees.

The example employment agreement provided shows that in respect to their regular duties the employee was:

- paid a salary

- would receive superannuation

- had set working hours between 8:30 and 5:00

- received one rostered day off per month

In addition to their general duties, the employees had to undertake X duties as a part of the X team. No employment agreement or documentation from the Business that outlines the X duties has been provided.

The X members were paid a bonus referred to the X bonus in addition to their salary.

Statutory declarations received by the previous Directors of the Business advise that the X members were required to work overtime which was compensated twice a year via payouts. These payments were recorded as '5021-0 Wages- bonus in Respect of O/T'. The payment was calculated at X.XX% of profit before tax as long as the profit was at least $0.

Documentation regarding the businesses' financial transactions was for the 20XX-XX and the 20XX-XX years was provided. These documents include the code 5021-0 Wages- bonus in Respect of O/T'. The document does not list the employees entitled to the bonus and no monetary value was listed in relation to this code.

Statutory declarations received by three of the X members advise that they engaged in substantial unpaid overtime outside regular hours and that the bonus was paid in lieu of overtime. The payment was explained to them and agreed that it was exclusive of superannuation as it was not classed as OTE.

The statutory declarations from these X members describe their numerous duties, some of these duties included managing branches, site visits, being on call and providing training.

The criteria for the bonus were outlined in a bonus agreement. An example agreement was supplied, it states that the bonus is based on the following criteria:

-Profit before tax of at least $X

-The bonus will be X.XX% of profit before tax and will be distributed to each of the X members in two instalments

The bonus agreement does not stipulate that the bonus was paid in lieu of overtime.

Relevant legislative provisions

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

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

Reasons for decision

All employers are required to provide a minimum level of superannuation support for their eligible employees by the superannuation guarantee (SG) period due date. From 1 July 2008, employers must use OTE as the earning base to calculate the minimum SG contributions required for employees.

The phrase 'ordinary time earnings' is defined in subsection 6(1) of the SGAA as follows:

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

(C) (Repealed by No 15 of 2007)

(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.

The Commissioner's views on OTE, including bonuses, are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'.

Bonuses and OTE

Paragraphs 28 to 29 of SGR 2009/2 outlines the Commissioner's view on bonuses with respect to an employee's OTE. These paragraphs state:

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 ordinary hours. For example, an employer may pay a bonus specifically to recognise a special project that an employee contributed to entirely in non-ordinary hours.

29. There would need to be clear evidence that this was the sole basis for the payment. The more common case of a lump sum performance bonus that is at least partly referable to results achieved in ordinary hours of work is wholly OTE.

You explained that the EMT members engaged in work outside of their ordinary hours, however the evidence provided does not eliminate the nexus between the EMT duties and the employee's ordinary hours.

The bonus agreement does not state that the EMT bonus is paid solely in regard to work performed entirely outside of ordinary hours, that it is paid in lieu of overtime or that the EMT duties were to be performed entirely outside of ordinary hours.

Additionally, the bonus was based on an adjusted 'profit before tax" amount of which some part would have been attributable to work performed in ordinary hours.

Even where part of payment can be shown not to be related to an employee's ordinary hours of employment, the Commissioner would still view the payment to form part of the employees OTE, unless clear evidence could be provided that the sole basis for the payment was for work performed exclusively outside the employee's ordinary hours of employment.

Conclusion

Applying paragraphs 28 and 29 of SGR 2009/2, the bonus forms part of the employees OTE for the purposes of subsection 6(1) of the SGAA. As a result, the employer has an obligation to make superannuation guarantee payments in respect of the bonus.