Australia: Superannuation Guarantee Ruling SGR 2009/2

Last Updated: 10 July 2009

Article by Sally Woodward and Alexandra Wolfsohn

New Superannuation Guarantee Ruling introduces significant changes to the definition of Ordinary Time Earnings: Implications for Employers

On 13 May 2009 the Australian Taxation Office (ATO) released Superannuation Guarantee Ruling SGR 2009/2. This Ruling makes some significant changes to the interpretation of what constitutes ordinary time earnings for the purposes of determining superannuation contributions and could have significant implications for employers. The Ruling is a change in interpretation of the legislation, and not a change to the legislation itself.

SGR 2009/2 will apply from 1 July 2009 and replaces Superannuation Guarantee Ruling SGR 94/4.

Since 1 July 2008, as a result of changes introduced to the Superannuation Guarantee (Administration) Act 1992 (SGA Act), employer superannuation contributions must be based on "ordinary time earnings" (OTE) (rather than the previous basis of "notional earnings base").

SGR 2009/2 has made significant amendments to the ATO's interpretation of OTE and a number of employee payments that would have fallen outside the definition under the previous ruling will now be deemed to be OTE and therefore superannuation contributions will be payable upon these amounts. This could have a significant cost implication for certain employers.

Ordinary Time Earnings

OTE is defined as the payment for the "ordinary hours of work".

Under the new ruling, SGR 2009/2, the term "ordinary hours of work" is defined as:

  • the hours specified as the employee's ordinary hours under an award or agreement; or
  • if the ordinary hours are not specified, the hours regularly worked by the employee; or
  • if the ordinary hours are not specified and the regular hours are impossible or impractical to determine, the actual hours worked.

In summary, under SGR 2009/2, all earnings for the ordinary hours of work are included as OTE. Payments for hours performed outside of the ordinary hours of work are not classed as OTE.

However, there are a number of payments that will now be deemed to constitute OTE. The most significant changes in position from SGR 94/4 affect, in particular, payments in lieu of notice, bonuses and leave payments.


SGR 2009/2 expressly states that ordinary hours of work will not include overtime, even if the employee works overtime on a regular basis. This clarifies a previous ambiguity, where there was a risk that payments for regular overtime would constitute OTE. Overtime payments will not form part of OTE for the purposes of determining the level of superannuation contributions.


Bonuses are now considered OTE in most cases, unless the bonus relates solely to work performed outside ordinary hours (for example a bonus which is solely to reward someone for the significant overtime that they have worked). Therefore, bonuses such as retention bonuses, sign-on bonuses and Christmas bonuses will now be included as OTE. Bonuses that are entirely discretionary will also be deemed to be OTE.

Payments in lieu of notice

A further significant change introduced by SGR 2009/2 is that payments in lieu of notice will now be considered to be OTE and therefore superannuation contributions must be paid on any payments in lieu of notice made to employees on termination of their employment. Many contracts of employment will not expressly provide for this, and will enable payments in lieu of notice to be calculated by reference to salary only. Employers will now be required to ensure that superannuation contributions are made to a complying superannuation fund in respect of such a payment, notwithstanding any contractual wording.

SGR 2009/2 also makes it clear that over-award payments, shift loading and commissions are included in the definition of OTE.

Leave payments

Leave payments continue to be included as OTE, irrespective of the type of leave as they are considered to be a continuation of the employee's ordinary time. However, payments in lieu of unused sick leave or unused accrued annual leave or long service leave payments on termination of employment are specifically excluded from the definition of OTE.

An interesting point to note is that as a result of the above, essentially any payments made to an employee during a period of paid parental leave (potentially including any parental leave payments made under the new government funded scheme) should be considered OTE. However, the Ruling does not expressly deal with the status of payments made to employees who are on parental leave or other ancillary kinds of leave and during the Budget on 12 May 2009, the Government announced that it still intends to clarify the superannuation guarantee status of certain types of leave payments, including parental leave. It is anticipated that the ATO will issue an addendum to SGR 2009/2 to reflect the terms of any legislation that gives effect to the budget announcement on paid parental leave.


Set out below is a table setting out what is considered OTE under the former and the new rulings. The shaded boxes highlight the significant changes from the previous ruling.

Payments made to an employee Previous Ruling SGR 94/4 New Ruling SGR 2009/2
Remuneration while on annual leave, sick leave or long service leave Yes Yes
Annual leave loading No No
Maternity leave or Jury duty leave No Included based on principles set out in SGR 2009/2 but may be excluded by announced legislative amendments
Lump sums paid for accrued annual, long service or sick leave upon termination of employment No No
Top-up payments when employee is on jury duty or serving in the armed forces No No
Overtime - occasional and regular No No
Occasional hours outside of an award or agreement No No
Regular hours outside of an award or agreement No No
Bonuses, Allowances and Expenses
Allowance by way of unconditional extra payment (not including reimbursement of expenses) Yes Yes

Includes danger, retention, site, dirt, freezer allowances.

On-call allowances are not OTE if they are paid in respect of hours that the employee is not otherwise working. However, if the on-call allowance is paid as part of a loading on salary (e.g. some doctors) this will be OTE
Allowance expected to be fully expended No No
Reimbursement of expenses No No
Includes petty cash and travel expenses
Bonus calculated by reference to work undertaken/ sales made during ordinary hours of work. Yes Yes
(Includes performance bonus and commissions unless it can be shown that the bonus relates to work done in non-ordinary hours).
"Christmas" bonuses and ex-gratia payments No Yes
When in respect of ordinary hours of work
Sign-on bonus Not addressed Usually, yes
Retention bonus Not addressed Yes
Benefits that are subject to Fringe Benefits Tax No No
Termination Payments
Payments in lieu of notice No Yes*
Redundancy Payments No No
Other payments (not already included as OTE) made by employer on termination on employment. No No
Payments by way of restraint of trade No Not discussed
Workers Compensation
Workers compensation payments where no work is performed (top-up accident payments) No No
Workers compensation payments where work is performed (top-up accident payments) Yes Yes
Casual loading Yes Yes
Shift loading   Yes if the shift-loading is payable on ordinary hours of work. No if the shift loading is payable in respect of other hours.
Government (wage) subsidies Yes Not discussed
Directors' fees Yes Yes

What does this mean for employers?

Employers will need to be aware that the changes to the interpretation of the definition of OTE may mean that there are changes to the ways that superannuation contributions are calculated for their employees. In particular, employers will be required to make superannuation contributions on most bonus payments and payments in lieu of notice. This could have a real cost implication to the employer.

Contracts of employment, applicable awards and workplace agreements should be reviewed to determine the scope of the obligations on the employer and to identify, where relevant, whether payments made to the employees are deemed to be inclusive of the superannuation contributions or whether this is an additional cost for the employer to bear. To the extent that any award or workplace agreement imposes obligations on the employer than are more favourable to the employee than the OTE definition in SGR 2009/2, for example, by requiring an employer to make superannuation contributions on overtime payments, then an employer's options may be limited, until any relevant workplace agreement is replaced or varied.

However, where appropriate, consideration should be given to amending contracts of employment and bonus plans to specify that all bonus payments and payments in lieu of notice are deemed to be inclusive of superannuation contributions.

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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