Superannuation on penalty rates

Superannuation guarantee compliance continues to be a high focus of employers in recent times; particularly due to increased ATO audits stemming from data-matching activities. Our reviews have identified a common theme for employers to be aware of.

Navigating the complexities of Superannuation Guarantee compliance is crucial for employers to avoid severe penalties. The shift in the Australian Taxation Office's (ATO) data-matching capabilities has resulted in a notable rise in Superannuation Guarantee Charge audits, making it imperative for businesses to prioritise accurate and timely contributions to their employees' superannuation funds.

The intricacies of calculating the minimum superannuation guarantee contribution, considering factors such as Ordinary Time Earnings (OTE), salary, and wages, demand a nuanced understanding. The distinctions between 'ordinary hours of work' and other hours, as outlined in the Superannuation Guarantee Ruling 2009/2 (SGR 2009/2) play a pivotal role in determining the correct amount payable. Employers must be diligent in adhering to these definitions to avoid miscalculations and potential legal ramifications.  We outline below some common traps we are seeing of late in our reviews of superannuation compliance.

Where can it go wrong?

Timing of payments

The Superannuation Guarantee Assessment Act (1992) (SGAA) requires employers to make the minimum superannuation contributions to a complying Australian superannuation fund at least four (4) times during the financial year (i.e. by the 28th of the month following the quarter end).  Paying the minimum superannuation contribution amount on time sounds self-explanatory, although we often see misplaced processes leading to funds clearing an individual’s superannuation fund after the required due date. The recent case of Mackie v Commissioner of Taxation cements the position that a payment in relation to superannuation is deemed made when the fund receives the payment.  

We have also received notification that some Australian superannuation funds are notifying individuals directly where employer contributions have been received late.   This has triggered a requirement by the employer to then lodge Superannuation Guarantee Charge (SGC) statements as a result of the late lodgement.  

Therefore, it is good practice to be aware of how long your clearing house provider takes to send the payment and land in the superannuation fund.

Ordinary time earnings (OTE)

Whilst the payment due date seems easy to comprehend, getting the minimum obligation contribution amount right is a little more complex.

OTE is briefly defined in subsection 6 (1) of the SGAA, which states the OTE is any payment that relates to ordinary hours of work. The Commissioner of Taxation released SGR 2009/2 to provide additional guidance and clarity on the terms ‘ordinary time earnings’, ‘ordinary hours of work’ and ‘salary or wages’. Generally, an employee’s ‘ordinary hours of work’ are the hours specified in their relevant industrial agreement or individual flexible agreement or employment agreement, or under a combination of these documents, which governs the employee’s conditions of employment.  Any hours worked outside or additional to the span of the specified ordinary hours of work are generally not a component of the employee’s ‘ordinary hours of work’, and therefore payments made in respect of the performance of work or hours outside of these are not ordinary time earnings. Typically, although not always, payments which reflect hours outside of an employee’s specified ordinary hours of work are paid at a premium/penalty rate.  This factor can provide additional support the payment is not ordinary time earnings, however, it is not the sole defining factor of whether a payment is in respect of an employee’s ordinary hours of work.

Meal breaks

We often see employers paying a penalty rate where an employee is required to work through their allocated or required meal breaks.  Due to the inconvenience of this, a penalty rate may be applied.  These meal breaks are typically between an employee’s ordinary span of hours of work.  Whilst the meal break specification is designed to ensure an employee does not work and takes necessary breaks (for safety, amongst other reasons), where the meal break is during an employee’s ordinary span of hours, any payments in connection with the intended break would be considered ordinary time earnings.

Minimum shift breaks

Across some industries, and their applicable Awards or employment agreements, employers are often required to pay an employee a penalty rate where they commence their next shift without taking a break of a number of minimum of hours.  

For example, Simon works as a home care nurse in the community.  His employer is required to comply with the Social, Community, Home Care and Disability Services Industry Award (SCHADS).  Under the SCHADS Award, Simon is entitled to have a minimum 10-hour break between finishing work on one shift or work period, and starting work on the next shift or work period where not in connection with a sleepover.  Where Simon does not get the required 10-hour break, his employer is required to pay him double time for the hours they work, until they finish their shift and are able to have a 10 hour break. 

Simon’s agreement specifies his ordinary hours of work are 38 hours per week, which are to be completed across a span of hours being 6am to 8pm.

Simon’s ordinary hours of work are scheduled between 7am and 3pm. Taking into account this example above, where Simon commences his shift at

7am and has only a 7-hour break between shifts, all hours worked during his ordinary shift will be paid a double time penalty. Although Simon receives a penalty rate (at double time), as the performance of work for which this penalty rate is applied relates to his ordinary hours of work and span of hours, it is deemed ordinary time earnings and superannuation potentially payable.

Where to from here?

We recommend employers who make payments of the nature described above review their current Superannuation configurations to gauge whether there is a compliance risk.

RSM Australia's engagement in resolving a Superannuation Guarantee Charge audit exemplifies the importance of proactive compliance measures. Employers should not only focus on meeting the minimum contribution amount but also ensure payments reach the superannuation fund before the specified cutoff date. Understanding the intricacies of OTE, particularly in scenarios such as working through meal breaks or insufficient rest periods, is paramount to making accurate superannuation payments.

In essence, achieving Superannuation Guarantee compliance is not just a regulatory obligation but a strategic financial imperative. Businesses that prioritise accuracy, timeliness, and a comprehensive understanding of the Superannuation Guarantee framework will not only mitigate risks but also foster a more secure financial future for both themselves and their employees.

FOR MORE INFORMATION

For more information on classifying workers as employees or contractor issues, please contact Rick Kimberley or Gina Nedeljkovic.