Are the Site Allowance, the Electrical Tradesperson Allowance and the Additional all-purpose Allowance contained in the Agreement and paid in conjunction with overtime payments made to employees working outside ordinary hours, considered ordinary time earnings (OTE) for the purposes of the SGAA?
No This advice applies for the following period : 1 July 2023 to June 2027 The scheme commenced on: 1 July 2023
• Your advice is based on the facts and circumstances set out below. If your facts and circumstances are different from those set out below, this advice has no effect, and you cannot rely on it. • The Principal currently pays the following allowances for employees working overtime - a site allowance, an additional all-purpose allowance, and an electrical tradesman allowance (paid where the employee holds an electricians' licence). • The relevant Agreement includes a range of clauses relating to allowances accompanying overtime.
SGAA subsection 6(1)
Question Are the Site Allowance, the Electrical Tradesperson Allowance and the Additional all-purpose Allowance contained in the Agreement and paid in conjunction with overtime payments made to employees working outside ordinary hours, considered ordinary time earnings (OTE) for the purposes of the SGAA? Answer No Summary To be included as part of OTE the allowances must be earnt during ordinary hours of work. In this case the allowances are in addition to non-ordinary hours of work, also known as overtime. The Agreement has successfully drawn a distinction between ordinary hours of work and non-ordinary hours of work. As such where overtime rates are paid to the employee superannuation guarantee contributions are not required to be paid on the overtime rate nor on the allowances, or cognate amounts, attached to that rate. Detailed reasoning 1. From 1 July 2008, all employers must use ordinary time earnings (OTE) as the earnings base to calculate the minimum super guarantee (SG) contributions required for their employees. 2. 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. 3. The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression. 4. The Commissioner's views on OTE are included in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages'. 5. Paragraph 11 states that: The SGAA does not define the expression 'earnings in respect of ordinary hours of work' or any of the terms in that expression.
6. Paragraphs 12 - 18 provide the Commissioner's view of what is meant by 'earnings' and 'ordinary hours of work'. They state: 12. 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'. 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 purpose 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, or outside the span (if any) of, those ordinary hours of work are not part of the employee's '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, or usual 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 to 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. 7. Paragraph 25 provides guidance on payments for overtime. It states:
25. 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. There is no such thing as earnings that are merely in respect of employment generally and are not OTE because they are not in respect of any particular hours of work. 8. Paragraph 27 provides guidance on whether an allowance paid to an employee is treated as OTE: Many employees receive various additional payments that are described as allowances or loadings and that are paid to employees to recognise or compensate for certain conditions relating to their employment. It further clarifies: These kind of payments are OTE except to the extent that they: Are not "salary or wages", for example if they are payments of a predetermined amount to offset or reimburse particular expenses; or Relate solely to hours of work other than ordinary hours of work (emphasis added). 9. Paragraphs 41 and 42 of SGR 2009/2 discuss certain specific kinds of payments that are not OTE. Overtime payments
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. 10. As stated above, all 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. 11. Accordingly, any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee's 'ordinary hours of work'. Any allowances paid that have a direct association to the overtime hours apply specifically to those hours worked outside of ordinary hours. 12. Paragraphs 185 to 188 of SGR 2009/2 provide further guidance in regard to earnings:
185. In the context of the SGAA, the word 'earnings' in the expression 'earnings in respect of ordinary hours of work' is used a descriptor of remuneration received by, or on behalf of, a person who is engaged in the performance of personal services in the capacity of an employee. The word is used in the definition of OTE in subsection 6(1) 'in relation to an employee. The component earnings that are either included or excluded in OTE have to be earnings of the employee. 186. The Commissioner considers that the term 'earnings' as used in the definition of OTE, embraces all those amounts, that are 'salary and wages' paid by the employer to their employee. 187. It follows that OTE in relation to an employee for a quarter is always a sum no larger than the salary and wages paid to that employee for the quarter. If it were possible for the OTE for a quarter to be substantially greater than corresponding salary and wages, employers might in some case be better off not making superannuation contributions, but rather incurring the charge instead...This outcome cannot have been intended.
188. In any case the ordinary meaning of earnings is sufficiently similar to the meaning of 'salary and wages' in the context of the SGAA that the two may be regarded as synonymous. 13. Paragraphs 204 and 205 provide further guidance regarding ordinary hours of work and the importance of overtime: 204. It is not essential for the award or the agreement to use the expression 'ordinary hours of work', but the instrument must disclose an intention to draw a genuine distinction between ordinary hours and other hours, which in particular would normally entail the other hours being remunerated at substantially higher (that is, overtime) rates. 205. Thus, a clause merely prescribing a minimum or maximum number of hours of work over a given period is not the same as one prescribing ordinary hours or work, particularly if any further hours of work actually performed are to be paid at the same rate as the minimum or maximum hours. 14. Paragraphs 225 to 227 provide further clarity that earnings 'in respect of ordinary hours of work' means all earnings other than overtime in the following way:
225. 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. 226. The Commissioner does not consider that the services of an employee specifically during certain hours of work is necessary for the earnings to be 'in respect of ordinary hours' and therefore OTE. The Commissioner's view is that the expression 'in respect of ordinary hours of work' was intended to ensure that overtime amounts and cognate amounts, were excluded from the earnings base . It was not intended to exclude amounts paid at a worker's ordinary time rate of pay paid for a period which would normally be their ordinary working hours (emphasis added).
227. 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. Application of the law to your circumstances 15. Based on the information provided by the Principal, all classes of employees covered by this advice are covered under the relevant Agreement. 16. The Agreement draws a genuine distinction between ordinary hours of work and other hours. 17. The Agreement provides that all hours worked in excess of or which do not form part of 'ordinary hours or work' are paid at a substantially higher rate. Therefore, these overtime hours do not attract a superannuation guarantee obligation, nor do the cognate amounts or allowances associated with those hours and associated payments.
18. The allowances paid by the Principal as part of an employee's salary and wages in connection to overtime are amounts payable in relation to non-ordinary hours of work and not referable to ordinary hours of work. 19. As such these allowances are not part of an employee's OTE, when paid in conjunction with overtime, as defined in subsection 6(1) of the SGAA.