New definition of ‘ordinary time earnings’

Written on the 24th of January 2010 by Joe Walsh

The ATO recently issued a new ruling on the definition of ‘ordinary time earnings’ and ‘salary or wages’ under the superannuation guarantee system. The final version represents a significant departure from the initial draft released in November 2008. The new ruling addresses some concerns raised by employers with the draft version, and also includes some new items in the superannuation contribution base.

Overview

The ATO’s original draft ruling provided that overtime, paid parental leave and jury duty payments could be included in an employee’s ordinary time earnings.

However, the final ruling states that overtime will not normally be included in ordinary time earnings. It also suggests that the Government plans to clarify the SG status of certain kinds of leave payments, such as paid parental leave and jury duty payments. Lastly, it manages a position taken by the ATO in relation to payments in lieu of notice and Christmas bonuses, stating that both are to be included as ordinary time earnings.

The new ruling applies to payments made to employees from the first quarter of the financial year i.e. from 1st July 2009.

Implications for employers

Although the change of the ATO’s position to include overtime differently is a positive outcome for employers, there are still several types of employee payments which will be included in ordinary time earnings from 1st July 2009 which were previously thought to be excluded from this category.

Employers should review existing employment arrangements to determine whether any additional superannuation contributions are required from the new financial year. Some employers may need to make changes to ensure their payroll systems are equipped to deal with the changes. In addition, terms used in employment agreements may need to be reviewed and changed if necessary.
Finally, given that the ruling expressly excludes paid parental leave, it seems likely that these payments may continue to be excluded from ordinary time earning. Employers should, however, be mindful that this may change and they should be ready to act once the government’s clarification comes through.