The Tax Office stipulates that a business must use “ordinary time earnings” to calculate the minimum compulsory superannuation guarantee contributions for employees. It says that using ordinary time earnings will ensure all eligible workers are treated the same, and will have a fair amount of super guarantee put away.
But what exactly is “ordinary time earnings”? The Tax Office says this is generally what your employees earn for their normal hours of work, and includes:
- over-award payments
An employee’s “ordinary hours of work” are the hours specified as his or her employment agreement or under their relevant award (or under a combination of such documents), which governs the employee’s conditions of employment.
If the ordinary hours of work are not specified, the ordinary hours of work can be taken to be the normal, regular, usual or customary hours worked by the employee, “as determined by all the circumstances of the case”, the Tax Office says. This is not necessarily the minimum or maximum number of hours worked or required to be worked.
Payments for work performed in a time outside an employee’s ordinary hours (such as overtime payments) are not ordinary time earnings. 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 referred to as overtime hours, or as remuneration for overtime hours worked.
But the Tax Office says that where overtime amounts cannot be distinctly identified, the hours actually worked should be included in ordinary hours of work. The Tax Office has provided a checklist (reproduced below) to help employers determine what is included in ordinary time earnings (OTE).
Checklist for salary or wages and ordinary time earnings
|Payments to an employee in relation to ...||Salary or|
|Awards and agreements|
|Overtime hours - award stipulates ordinary hours to be worked and employee works additional hours for which they are paid overtime rates||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 -|
|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|
|Allowance by way of unconditional extra payment||Yes||Yes|
|Expense allowance expected to be fully expended||No||No|
|Hourly on-call allowance in relation to ordinary hours of work for doctors||Yes||Yes|
|Payment of expenses|
|Reimbursement of travel costs||No||No|
|Payments for unfair dismissal||No||No|
|Workers' compensation -|
returned to work
|Parental Leave; maternity, paternity and adoption leave||No*||No|
|Ancillary leave; eg jury duty, defence forces reserves leave||No*||No|
|Termination payments -|
in lieu of notice
unused annual leave
|Bonus labelled as ex-gratia but in respect of ordinary hours of work||Yes||Yes|
|Bonus in respect of overtime only||Yes||No|
* These payments are specifically excluded from being “salary or wages” for superannuation guarantee purposes; however, they may be “salary or wages” for income tax purposes.