Possible changes to employee payments

It would be a good idea if employers review how they calculate their employees' superannuation.

Government regulations require employers to calculate their employees' superannuation contributions based on their Ordinary Time Earnings from 1 July 2008.

Most employers already do this, so these new regulations will only affect a few employers.

However, it would be advisable if all employers check how their employees' superannuation is calculated.

This is not an opportunity for employers to decrease contributions.

If employers are already paying more than Ordinary Times Earnings, because of award or enterprise agreement requirements, then they should continue to do so.

If they did decrease them, substantial government penalties will apply.

In the absence of any award or agreement provisions, the regulations state that Ordinary Time Earnings are those wages that employees earn for their ordinary hours of work. These include:

over award payments;
commissions;
allowances; and
paid leave.

Earnings base

Superannuation payments for employees are calculated using an earnings base like Ordinary Time Earnings.

However, other examples of an earnings base are:

an industrial award;
an existing agreement with the current employer;
a superannuation fund's trust deed; and
a law of the Commonwealth, States or Territories

In detail

According to the Australian Tax Office (ATO), payments made for the following are classed as wages/salary and considered to be Ordinary Time Earnings for the purpose of calculating superannuation contributions:

allowances (other than the reimbursement of an expense);
other bonuses (incentive, target, performance based);
commissions;
over-award payments;
shift loadings;
casual loadings;
workers compensation payments, including top-up payments paid by the employer where work is performed;
pay for annual leave taken;
government wage subsidies (for example, the Newstart allowance);
pay for sick leave taken;
pay for long-service leave taken;
director's fees;
payments for performance in, or provision of services relating to entertainment, sport, promotions, films, discs, tapes, TV or radio; and
payments to a contractor who is an employee under the Superannuation Guarantee Administration Act 1992 (labour portion only)

The following payments are classed as wages/salary but are not regarded as Ordinary Time Earnings for the purpose of superannuation contributions:

overtime;
bonuses that don't relate to a particular performance criteria ( for example, Christmas bonuses);
top-up payments (for example, when serving on jury duty or with reserve forces);
payments when on maternity or paternity leave;
annual-leave loading;
accrued annual leave, long-service leave and sick leave paid as a lump sum on termination;
payments in lieu of notice;
redundancy payments; and
other payments paid by an employer on termination of employment.

The following payments are not classed as salary or wages and are therefore not used in the Ordinary Time Earnings calculation.

reimbursement of expenses;
benefits subject to fringe benefits tax;
workers compensation payments, including top up payments where no work is performed;
dividends;
partnership and trust distributions;
payments for entering into a restraint of trade agreement; and
payments for domestic or private work under 30 hours.

For further information, visit the ATO website http://www.ato.gov.au/