OTE change prompts bonus number crunching

Financial services employers need to define the type of bonus being paid when calculating superannuation contributions, a workplace lawyer has warned.

Harmers Workplace Lawyers general counsel Greg Robertson said changes to calculating superannuation entitlements from July 1 now define what is ‘ordinary time earnings’ (OTE).

Previously, employers had different calculations as to what were an employee’s earnings when paying the superannuation guarantee charge,” he said.

There were a lot of grandfathering rights in older superannuation schemes.”

Robertson said some schemes included commission payments in the calculations while others did not, despite the commissions being a large part of a per_son’s remuneration.

After July 1, employers can only use ‘ordinary time earnings’, which will include bonuses paid in relation to performance, penalty rates and allowances to calculate the 9 per cent contribution.

Now excluded from the calculations are overtime payments, lump sum payments on termination for unused sick leave and annual leave or long service leave.

Also excluded are ex-gratia payments such as an end of year bonus and benefits subject to Fringe Benefits Tax.

Robertson said the bonus payments could be a grey area for the financial services industry because while financial planners are paid commissions based on sales performance, fund manager employees can be paid bonuses on how well the company has performed overall.

“It would be up to the description in the employee’s terms of work as to how they earned a bonus,” Robertson said.

Sometimes we see discretionary payments in work_place agreements based on how the company has per_formed during the year.

If the bonus payment was based on the employee having to achieve some goal, then it can be included in the calculations.”

Robertson said employers should check what was included in the employee’s base salary and change the wording in the agreement to reflect the changes in the law.

“The new law does clarify what is to be included and closes some long-standing loopholes in superannuation schemes,” he said.

“It is a simplification for everybody and the ATO [Australian Taxation Office] has released some guidelines for employers to help.”

Robertson said employers should also look at any changes in the calculations that result in agreed superannuation payments falling below the level stated in the employee’s terms of employment.

“Employers should review the wording of all future contracts, ensuring what is being offered neither fails to meet the minimum or inadvertently exposes them to a higher contribution than intended,” he said.

“In some cases, the contract of employment may oblige the employer to make the additional payments, even where salary packaging of superannuation was in place.”