‘Ordinary time earnings’ (OTE) is defined under s. 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA).
OTE includes amounts paid in relation to ordinary hours of work including over-award payments, shift-loading and commission. The definition under the subsection specifically excludes lump sum payments in lieu of unused sick leave, annual leave and long service leave.
OTE of an employee is limited to the maximum contribution base. In other words, an employer is not required to provide superannuation guarantee support on any payments in excess of the maximum contribution base. The ATO provides a table which outlines the maximum contribution base for each income year.
SGR 2009/2 provides guidance on the meaning of ‘ordinary time earnings’. To determine an employee’s OTE, it is essential to establish which earnings are in respect of the employee’s ordinary hours of work. The terms ‘earnings’ and ‘ordinary hours of work’ are not defined in the SGAA.
SGR 2009/2 defines ‘earnings’ as remuneration that is paid to an employee as a reward for their services. In practical terms, this means an employee’s salary and wages. ‘Ordinary hours of work’ is defined as an employee’s ordinary hours of work governed by the conditions of their employment, as outlined under their relevant award and/or agreement.
Where the phrase ‘ordinary hours of work’ is not used in the award or agreement, there must be a clear distinction between ordinary hours and non-ordinary hours, such as where non-ordinary hours are remunerated at a higher rate than ordinary hours (i.e. overtime) or when non-ordinary hours are separately identifiable in an employee’s total pay.
Where it is not possible to determine an employee’s ordinary hours of work, their actual hours worked should be used as their ordinary hours of work.
Over-award payments, shift-loading and commission
The OTE definition (s. 6(1) SGAA) specifically includes:
An over-award payment is any additional payment that is in excess of an award entitlement. An over-award payment is only considered OTE where it is paid in relation to ordinary hours of work.
A shift-loading payment is an additional amount paid to an employee for having to work outside the usual hours of day workers. Where shift-loading payments are made in respect of non-ordinary hours of work, such as overtime payments, they are not considered OTE.
A commission is a payment which is common among sales people and is usually awarded on the basis of the volume of sales. A commission is almost always considered OTE unless it can be shown that the payment is wholly referable to overtime hours worked, which is unusual.
Allowance: unconditional extra payment
Allowances that are paid to an employee, regardless of whether or not they spend that amount, are generally considered OTE where they are paid in respect of their ordinary hours of work. SGR 2009/2 considers these payments rewards for the services of the employee. If this payment is rewarded for services outside of the employee’s ordinary hours of work, it will not be OTE.
Bonuses
Additional payments made to reward employees for their services are usually OTE. However, if a bonus payment is in specific recognition of work performed solely outside of the employee’s ordinary hours of work, it is not OTE.
Payment that is not salary and wages
A payment can only be OTE if it meets the definition of ‘salary and wages’ under s. 11(1) of the SGAA. According to SGR 2009/2, payments that are not specifically included in the definition will be considered salary and wages if they meet the common law meaning of the term, provided they are not specifically excluded.
Overtime payment
By definition, overtime payments are usually paid in respect of work outside of an employee’s ordinary hours of work. Therefore, overtime payments are not OTE. However, overtime payments need to be separately identifiable from the employee’s usual pay or hours of work to be excluded from OTE.
Allowance: expected to be fully expended
An expense allowance is not considered to be salary or wages where there is a reasonable expectation that the allowance will be fully expended in the course of providing services. Therefore, these allowances are not OTE.
Reimbursement
Reimbursements are payments that compensate an employee for an exact amount that has been incurred by the employee (including where the employee is compensated in part). Reimbursements are not considered salary and wages and, therefore, are not OTE.
On-call allowance
On-call allowances are a payment to an employee for making themselves available at certain times to be called into work if needed. This is separate from the salary and wages the employee would receive if they are actually called in to work. These payments are not OTE if they are paid in relation to hours the employee is not otherwise working. However, these payments can be OTE where they are paid as a loading on the employee’s salary received for their ordinary hours of work.
In Appendix 1 of SGR 2009/2, the Commissioner of Taxation provides some specific guidance in relation to the nature of Salary and Wages and OTE in the form an index table and supplements this with factual examples of each table item. As appears from the modified extract from that table as set out below, Appendix 1 is a useful starting point (like the explanatory material in Appendix 2, it is not technically part of the formal Ruling) for determining OTE. The table should be read in conjunction with the Appendix 1 examples and not in isolation.
Extract of core information from Commissioner’s index table (associated example numbers and paragraph references omitted):
| Payments to an employee in relation to… | Salary or wages? | OTE? |
| Awards and agreements | ||
| A simple overtime situation | Yes | No |
| Overtime hours – agreement prevailing over award | Yes | No |
| Agreement supplanting award removes distinction between ordinary hours and other hours | Yes | Yes |
| No ordinary hours of work stipulated | Yes | Yes |
| Casual employee – shift-loadings overtime payments |
Yes Yes |
Yes No |
| Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause | Yes | No |
| Piece-rates – no ordinary hours of work stipulated | Yes | Yes |
| Overtime component of earnings based on ‘hourly driving rate’ formula stipulated in award | Yes | No |
| Allowances | ||
| Allowance by way of unconditional extra payment | Yes | Yes |
| Expense allowance expected to be fully expended | No | No |
| Danger allowance | Yes | Yes |
| Retention allowance | Yes | Yes |
| Hourly on-call allowance in relation to ordinary hours of work for doctors | Yes | Yes |
| Payment of expenses | ||
| Reimbursement | No | No |
| Petty cash | No | No |
| Reimbursement of travel costs | No | No |
| Payments for unfair dismissal | No | No |
| Workers’ compensation – Returned to work Not working |
Yes No |
Yes No |
| Leave payments | ||
| Annual leave | Yes | Yes |
| Termination payments | ||
| Termination payments – In lieu of notice Unused annual leave |
Yes Yes |
Yes No |
| Bonuses | ||
| Performance bonus | Yes | Yes |
| Bonus labelled as ex-gratia but in respect of ordinary hours of work | Yes | Yes |
| Christmas bonus | Yes | Yes |
| Bonus in respect of overtime only | Yes | No |
This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.