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Payroll – Is an allowance paid to an employee aged over 70 ordinary times earnings and subject to SG?

Employers need to consider the superannuation guarantee implications of equalisation payments made in lieu of increased super contributions.

An interesting matter crossed our desk recently. Whilst the matter was received by way of a question submitted to the TaxEd member Q&A portal, we will deal with the issue by way of a short article.

Consider a scenario where an employer provides superannuation at a higher rate for employees aged less than 70 to those aged 70 or more.

To compensate the employees aged 70 or more for the differential superannuation treatment, the employer pays an allowance to those employees in an amount that compensates for the differential. The allowance is included with the employee’s monthly salary and wage payment.

We were asked to consider whether the allowance may be ‘ordinary times earnings’ (OTE) and subject to superannuation guarantee (SG).

If the allowance is OTE and subject to SG this creates the anomalous position that employees aged 70 or over have effectively secured a windfall in that, in addition to the allowance, they will now receive SG on the allowance (which somewhat defeats the purpose of the allowance).

A number of issues are raised by the question.

Are employees aged over 70 eligible for SG?

Employees aged 70 or more are eligible for SG. Historically, SG only applied to employees aged up to and including 69. However, that position changed in 2013.

Assuming the employee is not otherwise ineligible for SG on the allowance (for example, the employee’s OTE exceeds the maximum quarterly contribution base), then prima facie a SG entitlement exists.

The question to be considered then is whether the allowance of this type is OTE.

Is the allowance OTE?

OTE is defined in s. 6 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) as including earnings in respect of ordinary hours of work (other than certain lump sum payments) but not greater that the quarterly maximum contribution base.

In relation to whether allowances are OTE, it is generally accepted the ATO view expressed in SGR 2009/2 Superannuation Guarantee: ‘meaning of ordinary times earnings’ and ‘salary or wages’ provides the correct guidance. At paragraph 27, the ATO indicates that allowances are OTE unless paid to compensate for an expected expense or are not referable to ordinary hours of work (relate to overtime or on-call allowances).

Paragraph 27 is reflected in ATO website material that provides examples of what is viewed by the ATO as OTE.

Despite the anomalous outcome having regard to the nature of the allowance being considered, it is difficult to argue that an allowance which is paid as part of salary and wages and is only conditional on the employee’s age is not earnings in respect of ordinary hours worked. On this view the allowance would appear to be OTE and as such requires SG to be paid.


This article provides a general summary of the subject covered and cannot be relied upon in relation to any specific instance. It is not intended to be, nor should it be relied upon as, a substitute for professional advice. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use.