ATO issues new ruling on “ordinary time earnings”

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Who does this affect?

All employers.

What do you need to do?

Consider the payments that should be included in calculating your superannuation contributions for employees.

Author
Michael Mathieson
Senior Associate

Michelle Levy

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John Edstein

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Sydney
Andrew Gray

Melbourne
Murray Kellock

ATO issues new ruling on “ordinary time earnings” - 14 May 2009

The ATO yesterday issued a new ruling on the meaning of “ordinary time earnings” and “salary or wages” in the superannuation guarantee regime. The final ruling differs significantly from a draft of the new ruling released in November 2008. While addressing some of the concerns of employers with the draft ruling, the final ruling does include some new items in the superannuation contribution base.

Background

The ATO’s views were previously expressed in superannuation guarantee rulings SGR 94/4 (ordinary time earnings) and SGR 94/5 (salary or wages).

On 5 November 2008, the ATO released a draft superannuation guarantee ruling (SGR 2008/D2) which stated that overtime, paid parental leave and jury duty payments could be included in an employee’s ordinary time earnings.

The new ruling (SGR 2009/2) replaces SGR 94/4 and 94/5. In contrast to the draft ruling, it states that overtime will not normally be included in ordinary time earnings. It also notes that the Government intends to clarify the SG status of certain kinds of leave payments, such as paid parental leave and jury duty payments. Finally, it announces new positions by the ATO in stating that both payments in lieu of notice and Christmas bonuses are ordinary time earnings.

The new ruling applies to payments made to employees in the quarter beginning on 1 July 2009 and all later quarters.

Ordinary time earnings

The new ruling explains what “ordinary time earnings” (OTE) means for the purposes of the Superannuation Guarantee (Administration) Act 1992. Since 1 July 2008 all employers must use their employees’ ordinary time earnings to calculate minimum superannuation contributions.

The first table below sets out how some key payments have been classified under the previous ruling, the draft new ruling and now the final ruling:

Payment	Previous ruling	Draft new ruling	Final ruling
Overtime	Not OTE: “makes no difference how often the employee works overtime”	Can be OTE: Look at “employee’s regular, normal, customary and usual hours” even if remunerated at overtime or penalty rates	Generally not OTE, but see the second table below
Parental leave	Not OTE: “These are payments made in respect of employment and parenthood, not in respect of ordinary hours of work”	OTE: “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”	Expressly excluded from scope of ruling: “the Government intends to clarify the SG status of certain kinds of leave payments”
Jury duty	Not OTE	OTE: “a reward for services during ordinary hours of work and is earnings in respect of ordinary hours of work”	Expressly excluded from scope of ruling - see above
Payments in lieu of notice	Not OTE	No comment	OTE
Christmas bonus	Not OTE	Not OTE	OTE

The next table below sets out how payments under awards and agreements are treated, which is directly relevant to whether overtime payments are counted as OTE:

Payments to an employee in relation to …	OTE?
A simple overtime situation	No
Overtime hours – agreement prevailing over award	No
Agreement supplanting award removes distinction between ordinary hours and other hours	Yes
No ordinary hours of work stipulated	Yes
Casual employee - shift-loadings Casual employee - overtime payments	Yes No
Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause	No
Piece-rates – no ordinary hours of work stipulated	Yes
Overtime component of earnings based on ‘hourly driving rate’ formula stipulated in award	No

Effective date

The draft ruling contained a statement suggesting that the final ruling could have retrospective operation, so that past reliance on the previous ruling would not immunise an employer from being issued with an SG assessment by the ATO. Unlike public and private income tax rulings, SG rulings are not binding on the ATO.

In a positive development, the final ruling does not include the statement that was in the draft ruling. Instead, the final ruling states that it applies “to payments made to employees in the quarter beginning on 1 July 2009 and all later quarters”.

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.

Alert

Background

Ordinary time earnings

Effective date