7 November 2024
While you may have heard of Ordinary Time Earnings (OTE), it can often raise questions among employers, particularly regarding its inclusion in Long Service Leave (LSL) and returned to work payments (excludes not working). Understanding the nuances of OTE and its implications for LSL and workers' compensation and other payments is essential for ensuring compliance with legal obligations and providing accurate information to employees. But what role does superannuation play in this?
What are Ordinary Time Earnings?
Ordinary Time Earnings (OTE) refers to the earnings an employee receives for their ordinary hours of work. This includes:
- Regular wages
- Commissions
- Some allowances, and
- Specific bonuses
The Australian Taxation Office (ATO) provides guidelines on what constitutes OTE, and it’s the basis for calculating the Superannuation Guarantee (SG) contributions that employers must make on behalf of their employees.
Superannuation and OTE
Superannuation contributions are calculated based on an employee's OTE. The minimum Superannuation Guarantee (SG) rate is currently set at 11.5% of OTE and is scheduled to reach 12% on 1 July 2025. Employers are required to pay superannuation on OTE to help ensure that employees have adequate retirement savings. This obligation applies to most employees, including full-time, part-time, and casual workers.
Long Service Leave (LSL) and OTE
Long Service Leave (LSL) is a period of paid leave granted to employees who have been with the same employer for an extended period, typically seven to ten years. The calculation of LSL entitlements varies by state and territory, but it generally includes the employee's ordinary pay.
When an employee takes long service leave, super guarantee is to be made on that payment. This isn’t the case when unused LSL is paid out as part of a termination payment.
Workers' Compensation and OTE
Workers' compensation provides financial support to employees who suffer work-related injuries or illnesses. The calculation of workers' compensation benefits varies by jurisdiction, but it generally includes the employee's ordinary earnings.
In most cases, superannuation contributions on OTE are not included in the calculation of workers' compensation benefits. This means that while employees receive compensation based on their ordinary earnings, the superannuation contributions made on their OTE are not factored into the workers' compensation payments, except when payments are made when employee is returned to work.
Impact on Contractors
Contractors, unlike employees, are typically responsible for managing their own superannuation contributions. However, there are circumstances where employers may be required to pay superannuation for contractors. If a contractor is deemed to be an employee for superannuation purposes, the employer must pay superannuation contributions based on the contractor's OTE. This determination depends on the nature of the working relationship and the terms of the contract.
For example, if a contractor works under a contract that’s principally for their labour, they may be considered an employee for superannuation purposes. In such cases, the employer must calculate and pay superannuation contributions based on the contractor's OTE. This ensures that contractors receive the same superannuation benefits as employees, promoting fairness and compliance with superannuation laws.
Key Considerations for Employers:
- Compliance with superannuation obligations: Employers must ensure they are meeting their superannuation obligations by calculating and paying the correct SG contributions based on OTE. Failure to do so can result in penalties and additional charges.
- Understanding State and Territory regulations: Employers should be aware of the specific regulations governing LSL and workers' compensation in their state or territory. This includes understanding how ordinary earnings are defined, what components are included in the calculations and the impact on super
- Seeking professional advice: Given the complexities of employment law and superannuation regulations, employers may benefit from seeking professional advice, such as financial, legal and tax.
This information may be general financial advice which doesn’t take into account your personal objectives, financial situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement available at australiansuper.com/PDS or by calling 1300 300 273. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/TMD.
AustralianSuper Pty Ltd, ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898.