A recent change to super law have been introduced to simplify and streamline the superannuation system. As an employer this change will impact on you.

From 1 July 2008 the only earnings base you can use to calculate super contributions for your eligible employees will be ordinary time earnings. This is the amount an employee earns for their ordinary hours of work, not including overtime. It includes over-award payments, shift allowances, commissions, and paid leave up to the maximum contributions base for the quarter.

The following are types of payments included in OTE for the purposes of calculating the 9% SGC:

salary or wages; allowances (other than reimbursement allowances); bonuses which relate to specific performance criteria; over award payments; shift loading; commission; casual loading; workers compensation payments, including top up payments, paid by the employer where work is performed; pay for annual leave, sick leave, long service leave, etc. taken; directors’ fees; and payments to a contractor who is an employee under SGC legislation ( labour portion only).

The following are examples of the types of payments which are not to be included in OTE for the purposes of calculating the 9% SGC:

reimbursement of expenses, e.g. travel costs; bonuses not related to specific performance criteria, e.g. Christmas bonus; overtime; benefits subject to FBT; workers compensation payments, including top up payments, e.g. accident pay, where no work is performed; other top up payments, e.g. jury fees or military service pay; payments when on parental leave; government (wage) subsidies; annual leave loading; accrued leave paid as a lump sum on termination; payments in lieu of notice; redundancy payments; other payments made by the employer on termination of employment; and dividends.

Note re the following payments

Some payments deserve particular attention:
Maximum superannuation contribution base: The SGC legislation prescribes a maximum OTE amount upon which the 9% employer superannuation contribution is calculated (for financial year 2005/2006 – $33,720 per quarter). For example, an employee on a salary of $35,000 per quarter would only be entitled to employer superannuation contributions calculated at 9% of $33,720.

Expense allowances: This is an allowance which is paid with the expectation that the money will be fully expended during the course of employment and therefore, is not included in OTE.

Other allowances: These are allowances which are paid to employees and are not fully expended in the course of employment. For example, those allowances which are paid because of particular conditions of employment applying to the job, such as height, dust or danger allowances, are included in OTE.

Casuals & overtime: Where the industrial instrument provides for a span of ordinary hours, e.g. 6am-6pm, Monday to Friday inclusive, any work performed by a casual outside these hours is regarded as overtime and, therefore, not included in OTE.

Salary sacrifice

The following points on salary sacrifice should be noted:

Industrial instrument-covered employees: It is a breach of an award or certified agreement for the employer to sacrifice an employee’s wages into a superannuation fund when the balance of wages payable after sacrificing is less than the minimum rate of pay prescribed by the applicable award or agreement.

It is permissible for the employer, with the employee’s consent, to sacrifice any over award payments into an appropriate superannuation fund.

As the incidence of a provision in awards or agreements allowing the sacrificing of wages below the prescribed minimum rate is low, reference should be made to the applicable award or agreement to establish the legality, or otherwise, of a salary sacrifice arrangement.

Non-industrial instrument employees: A reduction in an employee’s salary or wages as a result of them entering into a salary sacrifice arrangement reduces the earnings base on which the superannuation guarantee is calculated, consequently, salary or wages ‘sacrificed’ under such an arrangement are not included in any calculation of the 9% SGC.

Maximum amount: A common query from employers is whether there is a maximum percentage of an employee’s salary or wages which is allowed to be sacrificed into an appropriate superannuation fund. There is no statutory restriction to an employee sacrificing, for example, 100% of their salary, however, fringe benefits and income tax legislation, together with the taxation status of the employer, dictate how each benefit is treated for taxation purposes.

There are certain age-based limits on the amount which can be contributed by the employee (such limits increase annually by indexation), the disincentive from making contributions above the relevant age-based limit being that such contributions are not tax deductible.

Termination pay: An employer cannot sacrifice an employee’s pro rata leave payments due on termination of employment as such an arrangement can only sacrifice future earnings. The payment of leave entitlements on termination is related to service prior to termination of employment and, therefore, cannot be sacrificed.