Do overtime payments, commissions and Christmas bonuses attract superannuation payments?
The lead up to the festive season can be a particularly busy time for many businesses. As a result of increased trading, employers may be required to make additional payments to employees over and above their usual wage. For example, employers may need staff to work overtime, pay increased sales commissions or pay end of year bonuses and gifts.
It is therefore timely to remind employers which of these additional payments will attract superannuation contributions.
The basic requirement is for employers to contribute 9.5% of an employee's "ordinary time earnings" into their chosen superannuation fund. The test of whether any additional payments attract the obligation to make a superannuation contribution will therefore turn on whether such payments are considered "ordinary time earnings".
Whilst every situation must be assessed individually, “ordinary time earnings” do not include overtime. And how do you determine what payments are considered overtime? Generally, an employee's ordinary hours of work will be specified in the relevant award and/ or employment agreement. If neither specify, than an employee's ordinary hours of work will be determined by reference to the 'normal' or 'customary’ hours worked by that employee.
The exceptions to the basic rule that overtime does not attract superannuation contributions are where:
a) the award or agreement doesn’t specify ordinary hours and the employee works overtime at their usual rate of pay; or
b) the award or agreement removes the distinction between ordinary hours and overtime.
In most cases, “ordinary time earnings” includes shift loading, commission and bonus payments. Accordingly, shift loading, commissions and bonuses DO attract superannuation payments.
Annual leave and sick leave are part of an employee’s ordinary salary or wage and superannuation contributions must be made accordingly (superannuation need not be paid for annual leave loading and leave paid in a lump sum at the termination of employment). Paternal leave (ex. maternity leave) and ancillary leave (ex. jury duty) are NOT ordinary time earnings and superannuation is not payable.
It is important to reiterate that every situation needs to be assessed individually with reference to the relevant award and employment agreement. A useful guide to when superannuation is payable can be found on the Australian Taxation Office website.
If you require advice on superannuation payments or any other matters in relation to employment please contact us.