In 2018, I wrote a brief guide to superannuation, however, the concept of ‘ordinary time earnings’ (OTE) warrants a closer look, as it’s the basis for employers to work out how much superannuation is due. So what constitutes OTE?
By definition, overtime and ordinary time payments are mutually exclusive, however, there can be some grey areas. Any payments that are separately identifiable as overtime, and paid at a penalty rate, are excluded from the requirement to pay superannuation. But it’s common for employers to agree on a flat rate with employees for a working week that includes some hours that would otherwise be overtime, and this is where superannuation starts to get a bit tricky.
For example, I recently advised an employer regarding an employee who works 50 hours per week and is paid a flat rate of pay for each hour worked. The flat rate has been agreed between the parties under the flexibility arrangements in the award, and appropriately compensates the employee for the time worked, including overtime penalties.
Unfortunately, the employer had been paying superannuation on 38 hours per week, not 50 hours per week, under the misapprehension that was correct. The employer now potentially faces action by the ATO, and the requirement to pay the Superannuation Guarantee Charge as well as back paying the owed superannuation.
Superannuation is due on the payment for the entire 50 hours, because the overtime is not separately identifiable.
In another example, an employee works 42 hours per week, every week, and is paid 38 hours at an ordinary time rate of pay, and four hours that are separately identifiable as overtime payments, and paid at overtime penalties. In this case, only the 38 hours’ pay at ordinary time is superable, as the additional hours are clearly identified and paid as overtime.
Payments to casual employees
Any ordinary time wages paid to casual employees who earn greater than $450 gross in a calendar month are superable. This includes weekend penalty rates and the casual loading.
If a casual employee only works on a Saturday, as ordinary hours, then under the Timber Industry Award 2010 they are to be paid at time and 75% – being time and a half for working ordinary hours on a Saturday, plus the 25% casual loading. This entire payment would be considered OTE, and would be superable.
Of course, under the Timber Industry Award 2010, it is also possible for casual employees to be entitled to overtime payments (based on their actual, casual rate of pay) – if a casual is paid overtime, then the payment is not superable.
Note that in most jurisdictions in Australia, casual employees are entitled to paid long service leave, and if a casual employee takes long service leave during the course of their employment, they would be entitled to superannuation payments on this leave. Depending on the State- or Territory-specific rules, the relevant rate of pay for this leave may be the employee’s current rate, including the casual loading.
Weekend and other penalties
Under the Timber Industry Award 2010, it is possible for an employer and an employee to agree to work ordinary hours on any day of the week, including Saturdays and Sundays. The only caveat is that ordinary hours on a weekend still attract a weekend penalty of time and a half for Saturday work, and double time for Sunday work. This weekend penalty is not an overtime penalty, so the payments are still OTE, and superable.
If an employee works their ordinary hours Sunday through Thursday, and their days off are Friday and Saturday, then they will be paid at double time for the Sunday work, but it will still constitute ordinary hours. Superannuation would be payable on all wages paid for ordinary hours, including the penalty rate paid for work on Sunday.
By contrast, if an employee works their ordinary hours Monday to Friday, and works Saturday for overtime penalties, superannuation is only payable on the Monday to Friday ordinary hours, not the Saturday overtime.
Any paid leave that is taken while an employee is employed is superable, including annual leave, personal/carer’s leave and long service leave.
Superannuation payments on annual leave loading have been controversial over the past few years. The guidance material published by the Australian Taxation Office regarding the definition of OTE has been updated to clarify this particular question.
The ATO website now divides annual leave loading into two categories – that which is demonstrably referable to lost opportunities to work overtime while on annual leave, and all other leave loading. The Timber Industry Award 2010 does not refer in any way to annual leave loading of 17.5% being referable to lost opportunities to work overtime. It is likely to be the case that therefore, despite the history of annual leave loading being for precisely this purpose, annual leave loading is superable.
- payment in lieu of notice of termination is superable,
- no superannuation needs to be paid on unused leave that is paid out on termination, and
- as a general rule, any bonuses paid would need to be counted as OTE, and superannuation paid.
Hopefully this has shed some light on what can be a murky topic!