Edited version of administratively binding advice

Authorisation Number: 1052251090252

Date of advice: 3 June 2024

Advice

Subject: Superannuation and workers compensation

Question

Does the Company have an obligation under the Superannuation Guarantee (Administration) Act 1992 to pay superannuation guarantee on "top-up" worker's compensation amounts paid by the insurer to employees for hours not worked?

Answer

No.

This advice applies for the following period:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Company employs staff at locations around Australia. They have at different times a number of employees receiving worker's compensation payments from the employer's insurer. Some affected employees have returned to work at a reduced capacity.

A number of employees that were receiving worker's compensation payments are no longer employed by the employer.

The working arrangements for the employees are established under the Company's Enterprise Agreement 20XX. You provided us with a copy of the Agreement on 6 May 20YY (however this document does not contain any specific clauses regarding injured workers and compensation payments).

ATO ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' explains where a superannuation guarantee liability exists for employees receiving worker's compensation payments. Paragraph 68 of this ruling advises:

68. Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work as required form part of 'salary or wages'. In contrast, if the employment has been terminated, or if the employee is paid workers' compensation for hours not worked (or not attending work as required); the payment would not be 'salary or wages' as in these situations it cannot be said that the payment is a reward for the services of the employee to the employer.

Relevant legislative provisions

Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

Workers compensation payments made by or on behalf of the Employer to the Employees who have returned to and attend work following an injury/incapacity are salary and wages and OTE of the Employees for the purposes of subsection 6(1) of the SGAA. As such, the Company does not have an obligation under the SGAA to pay SG on top-up payments made to injured or incapacitated employees where those employees do not attend nor have performed work as required.

Detailed reasoning

Ordinary time earnings, in relation to an employee, is defined in subsection 6(1) of the SGAA as:

(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 their 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.

The Commissioner's view on OTE, as defined in subsection 6(1) of the SGAA, is set out in SGR 2009/2. Generally, 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'.

At paragraphs 68 and 76 of SGR 2009/2 the Commissioner discusses and expands on the meaning of 'not working' where compensation payments do not meet the definition of salary or wages nor ordinary time earnings where the employment has been terminated. They state:

Workers' compensation payments

68. Any workers' compensation payments received by an injured employee for the hours the employee performs work or attends work as required form part of 'salary or wages'. In contrast, if the employment has been terminated, or if the employee is paid workers' compensation for hours not worked (or not attending work as required); the payment would not be 'salary or wages' as in these situations it cannot be said that the payment is a reward for the services of the employee to the employer.

Workers' compensation payments - employee not required to work

69. Workers' compensation payments made by or on behalf of an employer to an employee who is not required to attend work due to incapacity, or whose employment has been terminated, are not salary or wages. '

You have advised that SG payments are being made to Employees by the Employer for employees who have returned to work following an injury.

At paragraphs 147-153 in Example 18 SGR 2009/2 the Commissioner provides an example of two employees who were both injured and both received workers compensation payments to illustrate the different treatment of workers' compensation payments. In the case of the employee who returned to work and was placed on lighter duties, the workers' compensation payment was salary and wages. In the case of the employee who was not able to return to work as a result of the accident the workers' compensation was not salary or wages.

At paragraphs 271 to 273 of SGR 2009/2 workers' compensation payments and other payments made on behalf of the employer are considered to be salary and wages where the employee performs work or is required to attend work.

Conclusion

The Company does not have an obligation under the SGAA to pay SG on top-up payments made to injured or incapacitated employees where those employees do not attend nor have performed work as required. The top-up payments are not considered to be salary and wages as they are not a reward for services provided by the employee to the employer.