The much-anticipated final Superannuation Guarantee Ruling on ‘ordinary time earnings’ (OTE) was issued on 13 May 2009 and will commence on 1 July 2009 (SGR 2009/2).1
From 1 July 2008, OTE is the only earnings base that can be used for calculating minimum employer contributions under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act).
ATO ruling SGR 94/4 contained the ATO’s previous interpretation of OTE. That ruling has now been replaced by SGR 2009/2. In the interim, however, the ATO released Draft Superannuation Guarantee Ruling SGR 2008/D2 (Draft Ruling) on 18 September 2008 for industry comment. The Draft Ruling detailed the ATO’s proposed new interpretation of OTE which departed in several significant ways from existing SGR 94/4, and caused much concern among employers.
SGR 2009/2 differs from the Draft Ruling in the following key respects:
Overtime
Pleasingly for employers, the ATO has generally reverted to its position under SGR 94/4 by excluding overtime from OTE and discarding the notion of ‘regular overtime’. SGR 2009/2 states that an employee’s ‘ordinary hours of work’ are the hours specified as his or her ordinary hours of work under the relevant award or agreement that governs the employee’s conditions of employment.
Bonuses
Certain types of bonuses have always been considered to be included in OTE, particularly performance related bonuses. However, under SGR 2009/2 it seems that Christmas bonuses are now included for the first time. There is also some further guidance now confirming that bonuses which are labelled as ‘ex gratia’ but are actually in respect of ordinary hours of work are included in OTE under SGR 2009/2.
Payments in lieu of notice
The position under SGR 94/4 was that payments in lieu of notice were excluded from OTE. There was some suggestion under the Draft Ruling that this position was to be reversed. SGR 2009/2 now expressly provides that such payments are included in OTE.
Paid parental leave and other ‘ancillary’ leave
The position under SGR 94/4 was that paid parental leave was excluded from OTE. That position was changed under the Draft Ruling, which expressly provided that parental leave payments were to be included in OTE. However, as a result of the Federal Government’s announcement on 12 May 2009 that it ‘intends to clarify the superannuation guarantee status of certain kinds of leave payments’, SGR 2009/2 does not deal with parental leave payments.
For the same reason, it does not deal with payments made to employees who are on other ‘ancillary’ kinds of leave, including top-up payments made while an employee is serving on jury duty or with the defence reserve forces. Under SGR 94/4, such top-up payments were specifically excluded from OTE.
Benefits under employee share schemes
SGR 94/4 and the Draft Ruling were both silent on the treatment of the acquisition of a share or right to acquire a share under an employee share scheme. Now, SGR 2009/2 expressly provides that such benefits are not included in OTE.
Implications for employers
- Although the reversal of the ATO’s proposal to treat overtime differently is a good result for employers, there are still several types of payments to employees which will be included in OTE from 1 July 2009 which were previously thought to be excluded from OTE.
- Employers will need to review their existing employment arrangements to determine whether any additional superannuation contributions will be required to be made from 1 July 2009. If so, employers will need to ensure their payroll systems will be equipped to accommodate the changes from 1 July 2009 and that any relevant terms in employment agreements are appropriately considered and changed if required.
- Interestingly, while SGR 2009/2 states that it applies from 1 July 2009, as there has been no change in the SG Act affecting the definition of OTE, the inference is that these items should always have been included in OTE. Consequently, it is open to the ATO to maintain that this revised interpretation has retrospective application.
- In relation to parental and ‘ancillary’ leave, given the express acknowledgement that these leave payments are not dealt with in SGR 2009/2, it seems that these payments can continue to be excluded from OTE following the approach under the old SGR 94/4. However, employers should be ready to act if this position changes once the government’s pending clarification comes through.
As a final word of caution, SGR 2009/2 is over 40 pages long and contains a number of examples, so its detail needs to be considered before definitive legal conclusions can be reached on any particular situation.
This article was written by Marlene Hewer, Solicitor and Natalie Gullifer, Partner, Melbourne.
Endnotes
1. Superannuation Guarantee Ruling 2009/2
More information
For information regarding possible implications for your business, contact a member of the Employee Relations team or the Superannuation team.