ATO Interpretative Decision
ATO ID 2010/113
Superannuation
Superannuation guarantee: ordinary time earnings and payment in lieu of a flex credit under a certified agreementFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a payment in lieu of a flex credit to employees under the terms of a certified agreement considered 'ordinary time earnings' (OTE), as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?
Decision
No. The payment in lieu of a flex credit to employees under the terms of a certified agreement is not considered OTE as defined in subsection 6(1) of the SGAA as the amount is not in respect of the employees' 'ordinary hours of work'.
Facts
The entity has a certified agreement (the Agreement) applicable for non-ongoing employees and sets out the employer's superannuation obligations.
The Agreement offers non-ongoing employees the opportunity to cash out a maximum of five hours flex credit at the end of a settlement period to salary, paid at single time rates.
The Agreement specifies that 'the span of hours during which employees may work their ordinary hours of duty is 7.30am to 6.30pm, Monday to Friday'.
A flex credit is defined in the Agreement as the accumulation of flex time in excess of working hours (74 hours and 10 minutes) over a settlement period.
The working hours for a settlement period of 74 hours and 10 minutes represents 10 working days of 7 hours and 25 minutes. The Agreement defines a settlement period for the purposes of flex credit and flex debit as follows:
For the purposes of flex credit and flex debit there is a two week settlement period commencing on a payday Thursday and ceasing on a Wednesday.
Reasons for Decision
Section 16 of the SGAA states that the superannuation guarantee charge (SGC) imposed on an employer's superannuation guarantee shortfall for a quarter is payable by the employer. An employer can avoid a liability to the SGC by making superannuation contributions at a specified percentage* of each of their eligible employee's 'ordinary time earnings' by the quarterly cut-off dates in the SGAA.
Under subsection 6(1) of the SGAA, the term 'ordinary time earnings' in relation to an employee means earnings in respect of ordinary hours of work (other than certain lump sum payments made to the employee on termination of employment) and earnings consisting of over-award payments, shift-loading or commission.
Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages', explains at paragraph 13 that 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. It also states at paragraph 25 that 'all amounts of earnings in respect of employment are in respect of the 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'.
In this case the employee's OTE would be his or her earnings in respect of the ordinary hours of work which are, according to the Agreement, up to 74 hours and 10 minutes accrued between 7.30am to 6.30pm, Monday to Friday over a two week settlement period. Payments in respect of hours worked outside this span of hours or in excess of the 74 hours and 10 minutes would not be OTE.
Lump sum arrears payments of unused leave or salary or wages otherwise than on termination of employment are normally OTE according to paragraph 36 of SGR 2009/2. However, earnings that are referrable to overtime or other hours that are not ordinary hours of work are not OTE, even if the lump sum payments were on termination.
The Agreement states that a flex credit is the accumulation of flex time in excess of the working hours for the settlement period (that is, 74 hours and 10 minutes). This means that additional time worked on a daily basis, that is, more than 7 hours and 25 minutes, would not necessarily represent a 'flex credit' or time worked outside 'ordinary hours of work'. A flex credit therefore only accumulates once an employee has worked their normal working hours for the settlement period. It is only at the conclusion of the full settlement period that the excess time becomes a 'flex credit'.
This means that a payment in lieu of flex credit would represent an amount paid for work performed in excess of, or in addition to, an employee's normal working hours for a settlement period, and therefore would not be 'in respect of' ordinary hours of work. Therefore, a payment to employees covered by the terms of this Agreement in respect of flex credit would not be considered to be OTE as defined in subsection 6(1) of the SGAA.
*From 1 July 2014 the SG rate increased to 9.5%. It is proposed that this percentage will rise gradually until it reaches 12%.
Amendment History
| Date of Amendment | Part | Comment |
|---|---|---|
| 1 October 2014 | Decision | Inserted note regarding current Superannuation Guarantee rate of 9.5% and proposal to increase to 12%. |
Year of income: Year ended 30 June 2010
Legislative References:
Superannuation Guarantee (Administration) Act 1992
subsection 6(1)
section 16
Related Public Rulings (including Determinations)
Superannuation Guarantee Ruling SGR 2009/2
Keywords
Superannuation guarantee charge
Superannuation guarantee scheme
Accrued & unused leave
Awards and industrial agreements
Non permanent employees
Date reviewed: 27 August 2014
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 11 November 2005 | Original statement |
| 3 May 2010 | Original statement |