Ordinary Time Earnings (OTE) are central to how employers calculate the minimum superannuation contributions they must provide to employees, as required by the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA). OTE represents a specific subset of the broader “salary or wages” an employee may receive from their employer. Employers use OTE to calculate minimum superannuation contributions for employees. They use “salary or wages” to calculate the SG charge. This charge arises when an employer fails to meet their required superannuation contributions. The Australian Taxation Office (ATO) calculates the SG charge based on “salary or wages” and employers pay it directly to the ATO.
What is OTE?
The SGAA defines OTE as including the total pay an employee earns for their ordinary working hours, excluding certain lump sum payments made when their employment ends – such as for unused sick leave, unused annual leave, or unused long service leave. OTE also includes extra pay such as over-award payments, shift loadings, or commissions. If these earnings exceed the quarterly maximum contribution base, employers calculate superannuation contributions using only the maximum base. The maximum contribution base is subject to yearly indexation. For the 2024-25 income year, the maximum contribution base per quarter is $65,070.
While it may be useful to have a high-level understanding of OTE, the Superannuation Guarantee Ruling SR 2009/02 further clarifies the meaning of OTE and “salary or wages” as they relate to certain specific types of payments. Below are examples of key payment types and explanations of whether they are defined as OTE, “salary or wages” or neither.
Specific Payments included as OTE
- Allowances and Loadings: Employers pay allowances and loadings to recognise specific working conditions, like remote work or difficult environments. These are OTE unless they are reimbursements or tied solely to overtime hours.
- Bonuses: Bonuses paid for good performance or similar reasons are typically OTE. However, if a bonus is clearly and solely tied to work done outside ordinary hours, it may not qualify as OTE. Lump sum bonuses tied to ordinary work hours are fully OTE.
- Piece Rates: OTE includes payments based on the number of units or items employees complete. Employees’ earnings must align with their award or agreement’s defined ordinary hours.
- Paid Leave and Holiday Pay: Salary or wages for ordinary hours during paid leave, such as annual leave or public holidays, are OTE. However, paid parental leave and ancillary leave are excluded. Leave loadings tied to a loss of overtime opportunities are not OTE.
- Top-Up Payments: Regulations exclude from OTE payments employers make to cover the difference between normal pay and jury duty or defence service earnings.
- Payments in Lieu of Notice: If an employer pays an employee instead of providing a notice period, these payments are considered OTE, as they represent earnings for ordinary work hours.
- Workers’ Compensation Payments: Workers’ compensation payments are OTE only if the employee is performing work or is required to attend work for ordinary hours. Payments for periods where no work is performed are not OTE.
- Directors’ Fees: Fees paid to company directors are OTE, as they are earnings for the director’s ordinary hours of work.
Specific Payments excluded as OTE
Overtime Payments: Payments for work done outside an employee’s ordinary hours are not considered OTE. This includes hourly overtime rates, specific loadings, or lump sums tied explicitly to overtime hours. However, if an employee’s salary package includes a general expectation of additional hours without identifying overtime separately, the entire salary is treated as OTE unless overtime is clearly itemised.
On-Call Allowances: On-call allowances paid to employees for being available outside of ordinary working hours are not OTE. If employers integrate such allowances into pay for ordinary hours (e.g., an extra rate for availability during regular duties), they consider them OTE unless linked to overtime hours.
The SGAA excludes certain payments from classification as “salary or wages,” so they are not OTE. These include:
- Payments for private or domestic purposes.
- Fringe benefits and non-cash payments.
- Payments specifically excluded under the SGAA, such as certain workers’ compensation payments, redundancy payments, or sign-on bonuses.
- Expense reimbursements and allowances for employer-related costs.
- Payments for unfair dismissal settlements.
These exclusions ensure OTE calculations focus only on earnings tied directly to ordinary hours of work.
Consult the ATO’s comprehensive guide for a quick reference on how to categorise specific payments as OTE or otherwise: https://www.ato.gov.au/businesses-and-organisations/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings
Conclusion
While Ordinary Time Earnings (OTE) focuses on earnings for ordinary working hours, the broader “salary or wages” captures additional elements relevant for the employer’s compliance with the SG charge. Understanding the distinction between OTE and salary or wages is crucial for employers to meet their obligations under the SGAA and for employees to receive their entitlements. If you have any questions regarding OTE, or any other employment related queries, contact us here.
