There has been an increase in investigations by the Australian Taxation Office (ATO) into superannuation guarantee compliance within the transport and logistics industry.
The superannuation guarantee regime requires that employers contribute at least 10.5 percent of an employee’s ordinary time earnings (OTE) to the employee’s superannuation fund. Such payments are tax deductible to the employer when made within quarterly due dates.
Broadly, an employee’s OTE refers to earnings in respect of ordinary hours of work. This broadly comprises salary and wages, excluding certain amounts such as remuneration for working overtime, and lump sum payments in lieu of unused annual leave and unused long service leave on termination of employment.
The remuneration paid to linehaul drivers often includes various allowances and benefits, which are often described in an applicable Enterprise Bargaining Agreement (EBA). It is then necessary to determine whether each allowance or benefit is included in an employee’s OTE.
We have observed that classification errors can occur with such allowances and benefits, including:
- Meals and incidentals allowance
Drivers may be entitled to a daily meals and incidentals allowance, which the employee is free to spend as he or she wishes. The amount of the allowance may be prescribed under an EBA. All allowances form part of OTE, except for two exclusions — allowances that are fringe benefits, and ‘expense allowances.’ An expense allowance is paid by an employer with the expectation that the employee will fully utilise the money in the course of providing their services. Accordingly, if the allowance is intended to fully cover meals and incidentals while the driver is on the road, the payment is not OTE. If the allowance is instead paid as a reward for services, and there is no expectation that it will be actually spent on food and incidentals, the payment will be normal salary and wages.
- Public holidays
Commonly, linehaul drivers will be required to undertake trips on public holidays from time to time, and may be paid at higher rates. There is a perception that such earnings will not be OTE, as they are not referable to ‘ordinary hours of work.’ However, the ATO considers ordinary hours of work may include hours to be worked on public holidays, particularly where the EBA requires that this occur from time to time.
- Rostered days off
Drivers may be entitled to a rostered days off (RDO) allowance. Payments in respect of RDOs will attract superannuation guarantee where those payments are earnings for ordinary hours of work. If the RDO allowances are paid solely in respect of the performance of overtime, they would generally not be subject to superannuation guarantee.
An EBA may prescribe the ordinary hours of work for drivers, often 38 hours a week. Where drivers under an EBA are required to work in excess of 38 hours a week, that excess may constitute overtime, and would not be OTE. The situation is less clear where the EBA does not cover certain employees – for example, an EBA may be specific to drivers but may not cover diesel mechanics or technicians. Where ordinary hours are not specified, it will be necessary to identify an employee’s ‘normal, regular, usual or customary hours.’ In such cases, it may be that payments for overtime hours are actually OTE, and included in salary and wages, where those hours are regularly worked.
The above examples are a brief snapshot of the types of payments were classification issues can arise for superannuation guarantee purposes. Other types of payments to drivers may include the following:
- driver leave loading;
- causal trip allowances;
- dangerous goods allowances; and
- trip extras paid where drivers undertake extra pick-ups and drop-offs.
What is the risk?
The risk of miscalculating OTE can have significant implications.
If an employer has not paid the minimum amount of superannuation guarantee within the quarterly due dates, the employer will be liable to pay the superannuation guarantee charge (SGC). The SGC is non-deductible and comprises the unpaid superannuation contribution, an administrative component ($20 per employee per quarter) and interest.
Penalties of up to 200 percent of the unpaid superannuation (Part 7 penalties) can apply where employers fail to provide information to the ATO. The Commissioner has the discretion to reduce these penalties to nil, depending on the circumstances. For quarters prior to 1 April 2018, the ATO generally cannot remit such penalties to below 100 percent.
How can Rigby Cooke Lawyers help?
The characteristics of each payment made to an employee needs to be closely examined to determine if it is included in OTE; it cannot be assumed that a payment is not OTE.
We often see that employers have superannuation guarantee shortfalls due to classification errors. Such errors may be systemic and applied across numerous staff over several years, resulting in significant shortfalls.
Employers should ensure they:
- hold records detailing all monetary allowances paid to drivers, and documentation explaining the expected use of these allowances; and
- retain records demonstrating the quantum of superannuation guarantee paid for each employee quarterly and annually, and how it calculated the amount of super which has been contributed for each employee.
We note that employers are required to retain records for five years from the date of the superannuation contributions.
If you would like to discuss your superannuation guarantee compliance, please contact our Tax team. We can assist you in the review of your company’s historical compliance, including a review of payments made to drivers, and work with you to make necessary disclosures.
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