The new SG rate and ordinary time earnings: What’s in, what’s out

On 1 July 2021, the super guarantee rate will rise from 9.5% to 10%. Your employer clients will need to ensure that their payroll and accounting systems are updated to incorporate the increase to the super rate. The ATO has provided some relevant calculators and decision tools to help cope with the change.

The superannuation rules stipulate that an employee’s earnings base must be the amount on which minimum superannuation contributions are payable to avoid the superannuation guarantee charge (SGC). This earnings base is determined as “ordinary time earnings” (OTE).

In general terms, this may seem self-explanatory — that is, OTE is what an employee earns for their day-to-day hours of work. However it is the extra elements to remuneration that can trip up an employer. For example, shift loadings and allowances are included in OTE, but not overtime payments.

Just to clarify, listed below are the remuneration elements that are (and are not) included (the relevant ruling is SGR 94/4, and the ATO has also just re-issued its guidance).

Payments included in ordinary time earnings for each employee

  • earnings for “ordinary” hours of work. In the case of casual workers, use actual hours worked (not minimum hours stipulated in employment contracts)
  • bonuses that relate to good performance (includes Christmas bonuses)
  • piece-rates where no ordinary hours of work stipulated
  • over-award payments
  • payments in lieu of notice
  • shift loading
  • casual loading
  • annual leave, sick leave or long service leave
  • allowances (excluding expense allowances and reimbursements and items that are fringe benefits such as a living away from home allowance)
  • commission or bonuses that relate to specific performance criteria
  • government subsidies
  • directors’ fees
  • workers’ compensation and top-up payments paid in relation to hours worked
  • the labour portion only of payments to a contractor who is an employee (that is, contract is wholly or principally for labour of that person)
  • payments for performance in, or provision of services relating to entertainment, sport, promotions, films, discs, tapes, TV or radio, and
  • remuneration of people in the service of the Commonwealth, the States or Territories, and local government councillors who are members of eligible local governing bodies (excludes payments to elected local government officials (unless they are effectively full time employees)).

Payments not included in ordinary time earnings

  • overtime payments for work performed during hours outside an employee’s ordinary hours of work
  • top up payments when serving on jury duty, or with reserve forces, etc
  • remuneration while on parental leave
  • annual leave loading that is clearly compensation for missed overtime while on leave (see this ATO page)
  • accrued annual leave on termination of employment
  • long service leave and sick leave paid as a lump sum on termination of employment
  • redundancy and employment termination payments
  • fringe benefits subject to fringe benefits tax
  • workers’ compensation and top up payments paid where no work is performed
  • pensions and social security benefits
  • dividends
  • partnership and trust distributions
  • payments for entering into a restraint of trade agreement
  • payments for domestic or private work for the employment of a person for less than 30 hours a week
  • allowances paid to local government councillors, unless they are effectively full time employees, and
  • unused flex leave to non-ongoing employees covered by a certified agreement.

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