Notional earnings base for the superannuation guarantee charge

Should the employer include long service leave payments that are paid to employees in the construction industry by a statutory board, which is set up under State legislation, in each employee's notional earnings base for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA)?

No, the employer should not include long service leave payments made by the statutory board in each employee's earnings base for the purposes of the SGAA.

Due to the nature of the work in the construction industry, workers often have difficulty accumulating long service leave entitlements. Accordingly, each State of Australia established a statutory board to administer a fund that enables construction workers to carry their entitlements from one employer to another and provides long service leave payments to workers in the construction industry. However, the statutory boards do not actually employ the construction workers.

Long service leave entitlements are paid in a lump sum by the statutory boards. The long service leave payments made by the boards are funded from various sources, including levies paid by employers in the construction industry. The long service leave entitlements are administered by the statutory boards and not by the employers in the construction industry.

In this case, the amount of superannuation contributions made by the employer for each employee is governed by the relevant industrial award for the construction industry. For the purposes of determining the employer's superannuation contributions, the applicable award specifies an earnings base for each employee that is based on 'ordinary time earnings', which the award defines as being earnings based on a specified average weekly wage. The definition of 'ordinary time earnings' under the award does not include long service leave entitlements.

For the purposes of calculating the superannuation contributions, the award adheres to the charge percentage required by section 20 (SGAA).

Under section 16 (SGAA), the employer is required to pay a superannuation guarantee charge where the employer has a superannuation guarantee shortfall. Section 19 (SGAA) stipulates that the superannuation guarantee shortfall is calculated by multiplying the total salary or wages paid by the employer to the employee by a charge percentage, which is ascertained from sections 20 and 21 (SGAA).

The charge percentage may be reduced to zero under section 22 or 23 (SGAA), thereby reducing the employer's superannuation guarantee shortfall to nil, where the employer makes superannuation contributions that are equal to the amount given by the charge percentage multiplied by the employee's 'notional earnings base'.

In this case, the construction worker's employer makes superannuation contributions on behalf of the construction worker at the rate required by section 20 (SGAA) multiplied by a notional earnings base, which is specified in the award: see paragraphs 4 and 5 of Superannuation Guarantee Ruling SGR 94/1. Given the fact that the earnings base specified in the award does not include long service leave payments made by the statutory board, the employer does not have to include the long service leave payments in each employee's notional earnings base when calculating whether the employer has met its superannuation contribution obligations.