In brief - Employers are only required to make superannuation contributions in respect of earnings for ordinary hours at ordinary rates of pay specified in industrial instruments to avoid the superannuation guarantee charge, even if employees usually work extra hours
In Bluescope Steel (AIS) Pty Ltd v Australian Workers' Union  FCAFC 84, the Full Federal Court had to consider whether the employer had made the correct amount of superannuation contributions for employees under certain awards and industrial agreements.
The employees were paid annualised or aggregate salaries. They worked up to 43.5 hours per week (38 base hours plus 5.5 additional hours) and were rostered to work on public holidays. The salaries were based on a formula which included a base salary, an additional hours payment and a public holidays payment. Additional hours and public holidays were paid at higher rates.
The additional hours payment and public holiday payment were payable whether or not the employees actually worked the additional hours and public holidays. Employees were subject to disciplinary procedures if they did not work those times, even at short notice. Employees normally worked more than 38 hours per week.
While the dispute concerned the proper interpretation of the applicable industrial instruments, the Court's decision has much significance for employers as the Court was required to consider:
- the meaning of ordinary time earnings in section 6(1) of the Superannuation Guarantee (Administration) Act 1992
- whether the superannuation guarantee legislation imposed a requirement on employers to make superannuation contributions
Those issues caused the ATO to intervene in the proceedings.
Meaning of ordinary time earnings
The definition of ordinary time earnings is, subject to certain modifications, earnings in respect of ordinary hours of work.
At first instance it was found this meant earnings from the hours usually worked by the employees.
The Full Federal Court overturned this decision and found that, having regard to the text, history and purpose of the legislation and the relevant extrinsic material, it meant earnings for ordinary hours paid at ordinary rates as set out in the industrial instruments, rather than earnings for the hours usually worked. This meant the employer was not required to make superannuation contributions in respect of the earnings for additional hours or public holidays. This supports the ATO's longstanding view in SGR 2009/2.
Does superannuation guarantee legislation impose an obligation on employers to make superannuation contributions?
The Full Federal Court also overturned the decision at first instance in relation to the effect of the superannuation guarantee legislation. It found that the legislation did not impose a positive obligation on employers to make superannuation contributions. All it did was provide an incentive for employers to do so, being imposition of the superannuation guarantee charge.
Therefore, provisions in the industrial instruments that provided that the superannuation guarantee legislation governed the superannuation rights and obligations of the parties did not create any legal obligations.
What should employers consider as a result of Bluescope Steel decision?
The implications of the decision for employers are:
- if industrial instruments record ordinary hours at ordinary rates of pay, superannuation contributions only need to be made in respect of those earnings to avoid the superannuation guarantee charge, even if employees usually work extra hours
- if industrial instruments do not record ordinary hours at ordinary rates of pay, employers may be required to make superannuation contributions in respect of earnings from hours usually worked by the employees
- if employees regularly work more than the ordinary hours and are paid an annualised or aggregate salary, the industrial instruments should reflect that the salary is made up of separate components for ordinary hours at ordinary rates of pay and other hours at higher rates of pay
- provisions in industrial instruments and employment contracts that provide that the superannuation guarantee legislation governs the superannuation rights and obligations of the parties do not create any legal obligations.
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.