The Australian Taxation Office released a new ruling on 13 May
2009 (SGR 2009/2) which makes some significant alterations in
relation to employer's requirements to pay superannuation
guarantee contributions on certain components of the wage bill.
This ruling comes into effect for payments made to employees in
the quarter beginning 1 July 2009.
Superannuation guarantee contributions are required to be made
on ordinary time earnings ("OTE"). The ruling alters what
is considered to be part of OTE in two important respects and
clarifies a third.
Overtime payments are excluded from the definition of OTE.
The overtime ruling reverses a previous draft ruling that, if
implemented, would have required employers to make substantial
additional superannuation payments. It has been welcomed by
However, employers need to be careful that ordinary hours of
work are stipulated in either the award applicable to the
employee's employment or in their employment contract. Where no
ordinary hours of work are stipulated, then all salary or wage
payments for hours worked form part of OTE.
Payments in lieu of notice
The bad news for employers relates to pay in lieu of notice.
Until now, superannuation guarantee contributions have not been
required to be made where an employer dismisses an employee and
pays them in lieu of notice. This will no longer be the case. The
ATO's reasoning behind this is that a payment in lieu of notice
is a payment to a dismissed employee equivalent to the ordinary
time rate of salary or wages that the employee would have earned
during the notice period. Accordingly, it is now deemed to be part
Further clarification has been provided in relation to the issue
of bonuses. If a bonus for good performance is at least partly
referable to work performed in ordinary hours of work, then the
whole payment is OTE and superannuation guarantee contributions are
payable on it. Contributions are not payable only where there is
clear evidence that the bonus payment relates solely to work
performed entirely outside ordinary hours.
The new ruling does not deal with the status of payments to be
made to employees who are on parental leave. This is a matter still
being investigated and clarified by the Government. In our e-alert
on 14 May 2009, we confirmed the government's announcement that
superannuation guarantee contributions are not required to be made
on payments in respect of the government's own paid parental
leave scheme. However, where an employer has its own paid parental
leave scheme, the issue of superannuation guarantee contributions
on those payments remains a grey area.
Employers should ensure that their payroll department is
familiar with these changes. The pay in lieu of notice requirements
should also be factored into the picture, when consideration is
being given to paying dismissed employees an amount in lieu of
notice that is greater than the amount the employee is legally
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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