Upcoming Mallesons seminarsAll employers.
What do you need to do?Consider whether you include overtime or paid parental leave in calculating your superannuation contributions for employees.
Michael Mathieson
Senior Associate
Michelle Levy
Partner
T +61 2 9296 2437
John Edstein
Partner
T +61 2 9296 2129
The ATO has released a Draft Superannuation Guarantee Ruling (SGR 2008/D2) explaining the meaning of the terms “ordinary time earnings” and “salary or wages”. The ATO says that overtime and paid parental leave can both be included in an employee’s ordinary time earnings. Both views represent significant departures from the existing ruling and are likely to increase minimum superannuation contributions for many employers who have relied on the ruling.
The draft ruling will replace SGR 94/4 (ordinary time earnings) and SGR 94/5 (salary or wages). It is expected to apply from 1 July 2009.
Ordinary time earnings
The draft ruling explains what “ordinary time earnings” means for the purposes of the Superannuation Guarantee (Administration) Act 1992. That Act defines ordinary time earnings as “earnings in respect of ordinary hours of work”. Since 1 July 2008 all employers must use their employees’ ordinary time earnings to calculate minimum superannuation contributions.
Overtime
The existing ruling says that overtime is not included in ordinary time earnings because: “These are paid for work performed outside ordinary hours of work. It makes no difference how often the employee works overtime”.
The draft ruling contains a significant about face - the ATO says: “An employee’s ‘ordinary hours of work’... are the hours of work during which it is usual for the employee to work”. This is the case irrespective of whether they work in excess of the standard hours prescribed in an industrial award or agreement and irrespective of whether they are paid overtime rates.
Paid leave
The existing ruling says that maternity and paternity leave payments are not included in ordinary time earnings because: “These are payments made in respect of employment and parenthood, not in respect of ordinary hours of work”.
The draft ruling says that maternity and paternity leave payments are included in ordinary time earnings: “Leave payments are not paid for actual attendance at work, rather the payments are an entitlement that arises from an employee's overall service, provided during ordinary hours of work, and the rate of pay applicable to leave payments reflects these ordinary hours of service”.
What should employers do?
It is questionable whether the existing ruling, particularly with respect to the views expressed on overtime, is consistent with the case law. Nevertheless, employers who relied on it in good faith may not anticipate a superannuation guarantee shortfall to be payable as a result. However, this could well be the case, particularly in respect of the period between the release of the draft ruling and its anticipated commencement date of 1 July 2009 because, at least since that date, employers could be on notice of what should be included, in the ATO’s view, in ordinary time earnings.
The ATO says in the draft ruling: “If the ruling, when issued, conflicts with a previous ruling, the ruling prevails. However, if you have relied on a previous ruling, the fact that you acted in accordance with that earlier ruling would be a relevant factor in your favour in the Commissioner's exercise of any discretion in regards to the imposition of any penalties.”
Therefore, all employers should review how they calculate superannuation contributions for employees in light of the draft ruling.