Payments in Lieu of Notice - August 2009

On 1 July 2009 a new ATO ruling dealing with employer statutory superannuation contributions on ordinary time earnings came into effect. The Ruling explains the meaning of 'ordinary time earnings' (OTE) as defined in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). The definition of 'ordinary time earnings' is relevant to employers for the purpose of calculating the minimum level of superannuation support required for individual employees under the SGAA. The Ruling also explains the meaning of 'salary or wages' as defined in section 11 of the SGAA.

The major change appears to be that payments in lieu of notice which previously were excluded from OTE are now classified as OTE, which is consistent with the common law position. Employers must ensure that when they terminate an employee and make a payment in lieu of notice to the employee, the remuneration base for the notice period should exclude SGC superannuation as this will be payable to the employee's superannuation fund.

Redundancy payments remain excluded on the basis that redundancy payments made on termination of employment are not a reward for services rendered by an employee, even if part of the payment is calculated by reference to the employee's period of service with the employer. They are payments to compensate the employee for the loss of their job; not a reward for their services. 

The Ruling also sets out a number of payments which are not salary of wages for SGAA purposes and thus are not OTE. These are:

• certain private or domestic payments;
• payments specifically excluded by the SGAA from being salary or wages for the purposes of calculating superannuation guarantee shortfalls;
• fringe benefits and other non-cash payments;
• some workers' compensation payments;
• some sign-on bonuses;
• expense allowance payments and reimbursement of expenses incurred for the employer;
• redundancy payments; and
• payments for unfair dismissal.

You can access the ruling by clicking the link below.

http://law.ato.gov.au/atolaw/view.htm?Docid=SGR/SGR20092/NAT/ATO/00001&PiT=99991231235958