Superannuation Guarantee - Ordinary Time Earnings

Superannuation Guarantee Charge (SGC) Legislation has been in place since 1992. We all know that employers have to pay 9% as SGC - but 9% of what? Ordinary Time Earnings is the answer, but what does that mean?

When SGC was introduced in the early 90s (at 3%) some employers who already provided superannuation under awards didn't want to have to change to a different base to calculate their contributions.

So, alternative earnings bases (which were in existence under a pre-21 August 1991 award, industrial agreement or law of the Commonwealth, State or a Territory) were allowed to continue instead of Ordinary Time Earnings'. That has now changed.

From 1 July 2008 the only earnings base that can be used to calculate SGC is Ordinary Time Earnings. The change was set in legislation 4 years ago but, for a lot of people, its coming into effect has caught them by surprise.

• What is Ordinary Time Earnings?
  
  Some employers may now be turning their mind to what is included in Ordinary Time Earnings for the first time. Some of those employers are realising that there is a risk that they may have underpaid SGC.
  
  Ordinary Time Earnings is defined in the relevant legislation as the total of earnings in respect of 'ordinary hours of work', including over award payments, shift loadings and commissions. Payments for annual leave loading, as well as payments on termination of unused sick leave, long service leave and annual leave are specifically excluded from the definition.
  
  
• What about overtime?
  
  The Australian Taxation Office's (ATO) views on the meaning of Ordinary Time Earnings are set out in Superannuation Guarantee Ruling SGR 94/4, which states that overtime is not included in ordinary time earnings no matter how often overtime is worked. But the courts have taken a different view.
  
  In some cases the courts have held that where an employee would be rostered on for, say, 50 hours per week (with, for example, 10 hours notionally being overtime) and the employee has regularly worked 50 hours per week, then the entire 50 hours will be counted as ordinary time earnings.
  
  Many employers have just assumed that only the payments made for the 40 hours of work are included.
  
  The ATO have recently indicated that SGR 94/4 is being re-examined and a new draft ruling will be issued in late 2008.
  
  
• Maximum earnings base?
  
  An often overlooked provision of SGC laws is that the 9% only applies up to a certain level. This is called the 'maximum earnings base'. It is currently set at $38,180 per quarter.
  
  That means that there is no SGC obligation to contribute more than $3,436.20 in superannuation in any quarter for any employee (but some employees will have other entitlements).

Macpherson+Kelley Lawyers. For further information contact Sam Eichenbaum, Principal on Phone: +61 3 9794 2634; Email: sam.eichenbaum@mk.com.au or visit the web site: www.mk.com.au
First published: 27 August 2008.
Last updated: 27 August 2008.