ATO updates guidance on OTE
“Ordinary time earnings” (OTE) is a fundamental concept in superannuation guarantee (SG). The SG rate (now 12%) applies to OTE, and earnings that fall outside OTE are not subject to super if the correct SG contributions are made on time.
The definition of OTE was set out at length in 2009 and has been the subject of discussion at various points. Issues such as whether overtime is sufficiently expected and regular to form part of OTE, or whether annual leave loading should included, have come to the forefront in recent years.
Earnings that fall outside the definition of OTE may still be “salary and wages”, which is relevant if a shortfall arises. In the event of a shortfall on OTE, the shortfall percentage is applied to salary and wages. For example:
In a pay period where OTE is $1,000 and overtime is $200, the required SG is $120 (12% of $1,000 in OTE).
If SG is not paid by the deadline, the rate of 12% is applied to salary and wages of $1,200 (i.e. including overtime) to arrive at the SG shortfall element of the SG charge = $144.
An administrative charge and interest also apply. Additional penalties may be imposed.
The new Payday Super regime (proposed from 1 July 2026) does not use salary and wages to calculate shortfalls. However, the distinction between what does and does not fall into OTE will remain relevant. Salary and wages continue to be a factor for shortfalls arising in periods up to 30 June 2026.
In August 2025 the ATO issued supplementary guidance on the meaning of OTE. This is particularly relevant under the Payday Super regime, where penalties will start to accrue automatically if OTE isn’t correctly identified at the time each payment is made.
Here are some of the interesting clarifications made in the new guidance:
Flexi time – all ordinary hours paid to employees under a flexi time arrangement are both salary and wages and OTE. This is regarded as different to rostered days off and time off in lieu (TOIL), which are OTE when paid at ordinary rates.
Breach of break payments such as rest, meal and crib break payments are OTE. Although the employee may be paid at overtime rates, they are working ordinary hours.
Long service leave paid under a portable long service leave scheme is not OTE.
TOIL cashed out at overtime rates is not OTE.·
Sign-on bonuses, referral bonuses and return to work bonuses after parental leave or as incentives to return to an employer are OTE.
Expect more guidance on the many new concepts introduced by Payday Super, including “qualifying earnings” (replacing salary and wages), QE day (payday) and the usual period for a QE day (period within which contributions are now required).