Edited version of private advice

Authorisation Number: 4110067468541

Date of advice: 12 June 2019

Ruling

Subject: Superannuation guarantee (SG) and ordinary time earnings (OTE)

Question 1

Where an employee has accrued an entitlement to time in lieu (TIL) pursuant to a relevant election made by the employee under relevant clauses under the agreement (the Agreement), are amounts paid ordinary time earnings (OTE) as defined in section 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

Answer

No

Question 2

Where an employee has accrued an entitlement to TIL, but the employee fails to take that TIL within the time permitted under the Agreement, are the amounts paid to the employee OTE as defined in section 6(1) of the SGAA?

Answer

No

Question 3

Where an employee has accrued an entitlement to TIL, but the employee fails to take that TIL prior to the termination of their employment, are the amounts paid in respect of accrued but unused TIL on termination of the employee's employment OTE as defined in section 6(1) of the SGAA?

Answer

No

This ruling applies for the following period

1 July 2018 to 30 June 2019

This scheme commenced on

1 July 2018

We considered these to be the relevant facts

You lodged a private ruling application on behalf of the Employer asking for administratively binding advice (ABA) on whether payments made in respect of time off in lieu (TIL) accrued is considered ordinary time earnings (OTE).

You provided a copy of the relevant agreement (the Agreement). It contained the following relevant information:

·        The Agreement allows, under various clauses, for employees to take TIL instead of being paid overtime.

·        The Agreement allows for TIL instead of a payment compensating employees for the missed opportunity to work public holidays where they are not scheduled to work a particular public holiday.

·        The Agreement requires the payment of TIL amounts where it is not taken within a prescribed period.

·        The Employer pays out accrued but unused TIL on the termination of an employee.

Relevant legislative provisions

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

Reasons for decision

Why we have made this decision

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 maximum contribution base for the 2018-19 year of income is $54,030 per quarter. The maximum super contributions base is indexed in line with AWOTE each income year.

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'.

Paragraphs 13 to 18 of SGR 2009/2 address the meaning of 'ordinary hours of work' and state:

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.

Specific kinds of payments that are OTE

Paragraph 25 of SGR 2009/2 provides that all amounts of earnings in respect of employment are in respect of an employee's ordinary hours of work unless they are remuneration for overtime hours or other hours that are not ordinary hours of work.

Paragraph 227 of SGR 2009/2 discusses an example of public holiday payments and ordinary working hours:

For example, during public holidays an employee does not provide services or attend work, and the entitlement to the payment for the holiday has not accrued during ordinary hours actually worked. However, the payment the employee receives is 'in respect of 'ordinary hours of work' because it is salary or wages received at their ordinary rate of pay paid for a period which would normally be their ordinary working hours.

Specific kinds of payments that are not OTE

Paragraphs 41 to 43 of SGR 2009/2 states:

41. Payments for work performed during hours outside an employee's ordinary hours of work are not OTE.

42. This is so whether the payments are calculated at an hourly rate or the employee gets a specific loading, or an annualised or lump sum component of a total salary package, that is expressly referable to overtime hours as remuneration for overtime hours worked.

43. However, some employees, particularly some managers and professionals, receive a single undissected annual salary within a remuneration package that recognises in a non-specific way that the employee may often be expected to work more than the ordinary hours of work prescribed. The whole amount of salary payable under such a package is OTE, unless overtime amounts are distinctly identifiable as mentioned in paragraph 42 of this Ruling.

Application to your circumstances

The Agreement defines ordinary hours for different types of employees. Hours falling outside of ordinary hours are overtime and are compensated at a higher rate.

Earnings in respect of 'ordinary hours of work'

As outlined in paragraph 25 of SGR 2009/2, all earnings in respect of employment are in respect of an 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. This position is further reiterated at paragraphs 225 to 229 of SGS 2009/2.

Applying the general principles outlined above, it follows that payments made to employees for unused time off in lieu, will be considered OTE, being earnings in respect of employment, unless they are:

·        remuneration for working overtime hours, or

·        otherwise referable only to overtime or to other hours that are not ordinary hours of work.

This position applies equally to payments 'cashed out' to an employee during the course of their employment, or on their termination. The only payments made to an employee on termination of their employment that are not OTE are those made in lieu of unused sick leave, annual leave or long service leave. This is because they are expressly excluded from the definition of OTE in subsection 6(1) of the SGAA. All other leave entitlements paid out to an employee during employment or on termination are treated in the same way as ordinary leave payments.

Time in lieu is accrued for working particular hours. It cannot be considered in isolation to the hours that give rise to the entitlement (that is, the nature of the hours for which the time in lieu is accrued) and if taken, whether the employee is effectively using the time in lieu as a replacement for their ordinary hours.

Whether a payment for unused time in lieu is OTE will therefore depend on whether it is paid in respect of an employee's ordinary hours. Unless the payment represents remuneration for working overtime hours, or is otherwise referable only to overtime or to other hours that are not ordinary hours of work, it will be earnings in respect of ordinary hours and OTE under the SGAA. To be OTE, it does not have to be paid for actual services performed or attendance at work during ordinary hours.

Therefore, wherever TIL is referable only to overtime hours worked, all payments made in respect of these hours will not be considered OTE.

Question 1

Where an employee makes an election under the Agreement to receive TIL of overtime, Payments made when this leave is taken will be referable only to overtime hours worked. It is therefore not OTE.

Furthermore, an employee can elect to receive TIL as compensation for the missed opportunity to work on a public holiday.

In this case, a public holiday equivalent payment is received by the Employees in respect of a prescribed public holiday which falls on a period which would not normally be their ordinary working hours in a given week. That being the case, this payment is referable wholly to hours which fall outside ordinary hours and is not OTE for the purposes of subsection 6(1) of the SGAA.

Question 2

Where an employee has accrued an entitlement to TIL, but the employee fails to take that TIL within the time permitted under the Agreement, it is paid out to the employee under the next pay cycle at ordinary hours.

Whether the payment is considered OTE will depend on how the TIL was accrued. As in this case it is wholly referable to overtime hours, it is not OTE.

Question 3

Where an employee has accrued an entitlement to TIL, but the employee fails to take that TIL prior to the termination of their employment, the amount is paid on termination.

Whether the payment is considered OTE will depend on how the TIL was accrued. As in this case it is wholly referable to overtime hours, it is not OTE.