Ordinary Time Earnings

From 1 July 2008 there will be a new requirement that employee’s superannuation guarantee (SG) contributions be based on ‘ordinary time earnings’ (OTE).

This may impact the way you calculate your SG contributions, as you will now be required to include bonuses, commissions, shift allowances and paid leave when calculating the 9% contribution.

In certain circumstances this may reduce some employees’ current take home pay, or may require you to adjust some salary packaging arrangements.

How may it affect your business?
You may want to measure the possible financial impact on your business and you may need to make adjustments to your administrative system. In future you may want to take the OTE requirement into account during salary negotiations.

How may it affect your employees?
Employees who are on a remuneration package with a fixed dollar value, may face a reduction in their take home pay if you need to increase their SG contributions based on OTE. Significantly, the actual value of their overall package will not reduce.
Alternatively, if super is treated as an additional cost on top of their salary package, the cost of remunerating that employee may increase because of the OTE requirement.

Can you give me an example?
An employee receives a $1,000 bonus in 2007-08 that is not subject to the SG contribution under the employer’s current arrangements. If the same size bonus is paid again in 2008-09, the employer would have to contribute an extra $90 (9% of $1,000), as an SG contribution. Alternatively the employer may choose to reduce the bonus.

What can I do as a business to ensure that OTE is included in employees earnings base?

• Review the earnings base for all your employees to ensure you are calculating your super contributions based on OTE
• Review the ‘Checklist for salary or wages and ordinary time earnings’ to see what is included and excluded from OTE
• Update your software and payroll systems
• Include performance based bonuses when calculating the super guarantee (but not Christmas bonuses)
• Include allowances when calculating the super guarantee (but not for reimbursements or fully expended allowances)
• Include employee commissions when calculating the super guarantee
• Have a strategy to inform your employees of possible changes to their super contributions.

Where can I go for more information?
Visit the ATO website at www.ato.gov.au/super, consult your authorised tax adviser, or call the OAMPS Super Service Centre, 8am to 8pm weekdays on 1800 812 993.

Employers