A challenge to “OTE is everything other than overtime”

In an intriguing riposte to the Commissioner’s default position – that any payment not explicitly attributable to work outside ordinary hours must form part of ordinary time earnings (OTE) - the Federal Court has found that a Salary Loading Allowance, not proven to be attributable to the lost opportunity to earn overtime, is not OTE and thus not subject to super guarantee.

The Commissioner’s current position on OTE, which forms part of Qualifying Earnings (QE), the earnings base under the new Payday Super regime, is stated in LCR 2026/D1.

“All amounts of earnings in respect of employment are in respect of the employee's ordinary hours of work unless they are remuneration for working overtime hours, or are otherwise referable only to overtime or to other hours that are not ordinary hours of work. That is, earnings 'in respect of ordinary hours of work' are all earnings other than earnings that are solely in respect of non-ordinary hours of work.” [emphasis added]

On this basis, it is the ATO’s position that various loadings and bonuses form part of OTE, unless it can be demonstrated that they relate to work performed outside ordinary hours. For example, hardship allowances, sign-on and Christmas bonuses, are paid in addition to payments for ordinary hours at ordinary rates, but are regarded as OTE, based on the ATO’s position that they arise in connection with ordinary hours of work.

The Department of Education case involved the treatment of payments of Salary Loading Allowance to teachers. The payment was an annual salary loading allowance, equal to 17.5% of four weeks of the total salary to which the teacher was normally entitled. Evidence established that only very limited opportunities were available to teachers to earn amounts in addition to their regular salaries, making the point that “overtime” was not a feature of the teaching profession. Nevertheless, it was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts.

Justice Button concluded that the loading was not linked to the provision of compensation for any lost opportunity to earn overtime during holiday periods. She acknowledged the Commissioner’s submission that the loading was payable without teachers having to work additional hours over and above their standard hours. However, she held that their salary remunerated them at ordinary rates for their ordinary hours. To be entitled to the loading, they needed to have completed a full year of service. She characterised this as a payment made in addition to their salary.

Importantly, Button J stated:

There is simply no anchor in the statutory language, context or purpose for the proposition that unless the payment is analogous to annual leave loading, or can be shown to be linked to lost opportunities to earn overtime, it will be OTE. While the presence of such features may assist in the analysis, their absence is not determinative.

Therefore she concluded the Salary Loading Allowance payments were not OTE, and the Department of Education was correct in excluding them when calculating superannuation guarantee for teachers.

It seems likely the ATO will appeal this case, which would fundamentally change the position on many elements of remuneration. It will be interesting to see their response and employers should stay posted, as the outcomes may significantly affect the cost of superannuation guarantee on several common elements of employee pay.