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 choose to pay end of year bonuses.
It is therefore timely to remind employers which of these additional payments will attract superannuation contributions.
Employers must contribute 10% (10.5% from 1 July 2022) of an employee's "ordinary time earnings" (“OTEs”) 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".
Ordinary Time Earnings
To determine an employee’s OTEs, an employer should first check the applicable employment agreement and/or Award or enterprise agreement. These documents will often specify set ordinary hours of work. If these documents do not set ordinary hours of work, then an employee's ordinary hours of work will be determined by reference to the 'normal' or 'customary’ hours worked by that employee.
In most cases, OTEs include shift loading, commissions, bonus payments, some allowances and annual leave loading. Accordingly, these types of payments DO attract superannuation payments.
Leave
Annual leave, sick leave and long service leave are part of an employee’s ordinary salary or wage and superannuation contributions must be made accordingly.
If an employee is terminated, an employer must pay superannuation on any lump sum payment in lieu of notice but does not have to pay superannuation on a lump sum payout of accrued annual leave.
Parental leave (maternity leave, paternity leave and adoption leave) and ancillary leave (e.g. jury duty) are NOT ordinary time earnings and superannuation is therefore not payable.
Overtime
Whilst every situation must be assessed individually, as a general rule, time worked by an employee in excess of his/her/their ordinary hours of work will be overtime.
Provided an employee’s hours of work are clearly identified, OTEs do not include overtime. This means employers are not required to include overtime worked in calculating an employee’s superannuation contribution.
The exceptions to the basic rule that overtime does not attract superannuation contributions are where:
- the award or agreement doesn’t specify ordinary hours and the employee works more than they usually do at their usual rate of pay; or
- the award or agreement removes the distinction between ordinary hours and overtime.
In both of the above scenarios, overtime hours are not clearly distinguishable, so all wages/salary earned are considered OTEs and thus attract superannuation.
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 issues please contact us.