BONUS ARTICLE – Super guarantee is based on “ordinary time earnings”, but what exactly are they?

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
  • bonuses
  • commissions
  • allowances.

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 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
wages?
OTE?
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 –

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
Parental Leave; maternity, paternity and adoption leave No* No
Ancillary leave; eg jury duty, defence forces reserves leave No* No
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

 

* 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.