Please see the checklist for salary or wages and ordinary time earnings at the end of this document.

Ordinary hours of work is not limited to any set number of hours e.g. 38 hours per week or to hours worked within specified hours.  Ordinary hours can include night and weekend work

Ordinary time earnings does not include:

• Overtime
• Lump sum payments made to an employee on termination of employment, such as:
• Payments made in lieu of unused sick leave
• Unused annual and long service leave payments within the meaning of the Income Tax Assessment Act 1997.
  

Ordinary time earnings is also limited to a “maximum contribution base”.  For the 2007/8 year the maximum contribution base is $36,470 a quarter.  Given this employers do not have to contribute more than 9% of $36,470 for any employee for a particular quarter.

Calculation of the Superannuation Guarantee

Section 27 of the SGAA details the salary or wages that are not to be taken into account for the purpose of making a calculation under section 19 of the SGAA.

Section 27(2) specifically provides that:

“if an employer pays an employee less than $450 by way of salary or wages in a month, the salary or wages so paid are not to be taken into account for the purpose of making a calculation, in relation to the employer and the employee, under section 19.”

As the definition of salary or wages pursuant to section 11 of the SGAA has a broader application with ordinary time earnings forming part of salaries or wages, payments specifically excluded from ordinary time earnings will not necessarily be excluded from the definition of salary or wages.

This means that while payments specifically excluded from ordinary time earnings will not be taken into account for the purpose of making a calculation of the Superannuation Guarantee, they will be taken into consideration for the purposes of meeting the $450 threshold requirements of Section 27(2) of the SGAA.  The following example is provided as further clarification of this point.

Example

An employee is paid ordinary time earnings of $300 and overtime payments of $200 in a calendar month.  While the ordinary time earnings ($300) does not meet the $450 threshold for the calculation of the superannuation guarantee, the total salary or wages ($500) does and as a result the employer would be liable to calculate the superannuation guarantee as 9% of the ordinary time earnings ($300) for that particular month.

What do employers need to do?

• Review the components of salary or wages currently used for superannuation purposes for all employee groups
• Identify what is included and excluded from ordinary time earnings and salary or wages under the SGAA (see checklist below)
• Identify what is included and excluded from ordinary time earnings and salary or wages under the SGAA (see checklist below)
• Identify employees ordinary hours of work
• Assess the cost impact of any change in salary or wage definition for budgeting purposes
• Consider the impact of OTE and salary or wages when reviewing remuneration arrangements
• Investigate how bonuses and commissions which are generally included within ordinary time earnings will be managed
• Plan an employee communication strategy
• Examine HR and Payroll systems and assess what changes may be required 

Checklist for salary or wages and ordinary time earnings