Annualised Salaries and Superannuation

The often-vexed question of exactly how much of an employee’s annualised salary is to be taken into account to calculate superannuation entitlement has been analysed by the full federal court. And it has found that the component of an annualised salary attributed to work beyond ordinary time, is not to be counted for superannuation purposes.

The case was an appeal from an earlier decision where the argument super should be levied on the full annual salary had been accepted. But the appeal bench disagreed and traced the long history of the term “ordinary hours” through the award and workplace legislation history, before turning to the taxation law surrounding super.

The enterprise agreements which applied to the employees set out the component parts of what would be their standard working week, and this included overtime. The court drew a distinction between the meaning of “ordinary hours” and the (mistaken) belief that it was interchangeable with the standard or usual hours for which the employees were engaged.

Put another way, the appeal made it clear that where an annualised salary is paid and intended to include additional (overtime) hours, then, provided the payment for those hours is distinguishable from the ordinary hours payment, then there was no case to pay superannuation on the additional hours component. Since the enterprise agreements spelt out those components and their value, super was not due on the full amount paid.

This decision does not mean that anyone on an annual salary is caught by it. Quite clearly the appeal court was able to see from the wording in the agreement that the employer and employees had agreed to operate a working week longer than ordinary hours of 38 per week. Without those specific provisions in the document, it is doubtful the outcome would have been the same. It is likely the same would apply to an employment contract.

The case underlines the importance of taking care to ensure that if additional hours are significant and paid for at a higher rate, where some relief from the superannuation levy that would otherwise apply to the annualised salary is needed, the documentation must support that need and spell out the component parts.

Bluescope Steel (AIS) Pty Ltd v Australian Workers’ Union [2019] FCAFC 84 (24 May 2019)