Super and 'Ordinary Time Earnings'

In November 2008, the Australian Tax Office (ATO) issued a Draft Ruling that proposed to change the well-established and accepted definition of 'ordinary time earnings' (OTE) on which compulsory employer superannuation contributions must be paid to include any earnings paid for 'regular, usual, customary or normal' working hours.

The proposed change meant that 'regular overtime' would have to be included by an employer in calculating an employee's superannuation entitlements. The cost impact of this change would have been substantial for many industries, particularly those where significant overtime is worked, including the transport industry and seasonal industries such as harvesting. There were also practical and administrative burdens associated with the new definition.

Cornwall Stodart has strong ties to many of the industries particularly affected by the proposed change, especially to the transport industry. ARTIO asked us and Pitcher Partners to assist in preparing a submission to the ATO to amend the Draft Ruling.

Philip Lovell, Secretary Treasurer of the Australian Road Transport Industrial Organisation (ARTIO), believed the proposed change would add as much as 5-6 per cent to the payroll of most transport companies without any ability for them to increase prices. Moreover, the new definition would effectively cost the industry more than $50 million annually.

The submission to the ATO (authored by Cornwall Stodart and Pitcher Partners) argued that:

• there was no legislative change to support the ATO's changed interpretation of OTE
• it is impossible to determine what is 'regular, normal, usual or customary' until after the reporting period
• the cost to the transport industry alone would be enormous, around 5-6 per cent increase in payroll.

In May 2009, the ATO issued its final Ruling on OTE, overturning the Draft Ruling and reinstating the definition of OTE in line with previous interpretations. Hence, any earnings 'distinctly identifiable' as having an overtime component or relationship are excluded from OTE.

A great result for our clients!

For more information, please contact:

Louise Houlihan, Partner and Head of Employment & Industrial Relations  

Phone (direct):  +61 3 9608 2273        

Email:                 l.houlihan@cornwalls.com.au