Let’s face it. Trying to understand your payslip can be a headache, especially when the terms and abbreviations used are unfamiliar to you. If you’re an employee in Australia, you may have heard the term “ordinary time earnings” thrown around. But what exactly does it mean? Ordinary time earnings (OTE) refer to the amount of money an employee earns for their regular hours of work, excluding extra payments such as overtime, bonuses or allowances.
So, what’s included in ordinary time earnings? Well, it is made up of an employee’s salary or wages, not including any additional payments. These can include annual leave and sick leave paid out, but does not include non-monetary benefits such as superannuation contributions, car allowances or non-cash benefits. As such, the total amount of earnings will be different from an employee’s gross pay but will form the basis for calculating superannuation contributions.
Knowing the ins and outs of your ordinary time earnings is essential as it impacts your employment benefits as an employee. In fact, employers will use your OTE as a basis for calculating your superannuation entitlements. So, if you’re earning additional payments, it’s important to understand how it affects your OTE. With that being said, let’s delve a little deeper into what can and cannot be included in it.
Definition of Ordinary Time Earnings
Ordinary Time Earnings (OTE) refer to an employee’s earnings during their ordinary working hours. It includes any salary, wages, commissions, bonuses, allowances, and certain reimbursed expenses. OTE is a significant element in calculating various entitlements for employees such as superannuation, annual leave, and termination payments.
OTE is not restricted to an employee’s regular pay rate. It includes additional allowances, bonuses, and commissions paid to the employee based on their performance or achieved goals. For instance, if an employee works overtime, the additional income earned is not included in their OTE. However, other payments, including annual leave loading or commissions, received in their ordinary working hours, are included in their OTE.
OTE excludes certain payments, including overtime, redundancy payments, and payments for unused leave or sick leave. Severance payments and bonus payments that do not relate to ordinary working hours are also not included.
The Australian Taxation Office (ATO) provides further guidelines on what is included in OTE. These guidelines help employers calculate their employees’ entitlements correctly. The table below outlines some of the allowances and payments that are included and excluded in OTE.
| Included in OTE | Excluded from OTE |
|---|---|
| Salary and Wages | Overtime payments |
| Commissions and Bonuses | SeverancePay |
| Allowances and Reimbursements | Payments for Unused Sick Leave |
| Annual Leave Loading | Payments for Unused Leave |
Employers should ensure accurate reporting of OTE to avoid potential legal issues and employee disputes. It is essential to classify an employee’s earnings appropriately based on their ordinary work hours and the ATO guidelines.
Types of Payments Included in Ordinary Time Earnings
Employees often have questions about what constitutes Ordinary Time Earnings (OTE). OTE is essential because it forms the basis for calculating the superannuation guarantee (SG) amount an employer must contribute to the employee’s super fund. It’s essential to know what types of payments make up your OTE.
- Salary or wages
- Overtime payments
- Bonuses
- Commissions
- Allowances
- Director’s fees and honorariums
- Payment for unused annual leave or unused long service leave
- Payment of unused sick leave
- Workers compensation payments
In short, any payment an employee receives for ordinary hours worked or leave entitlement is classified as OTE.
Types of Payments NOT Included in Ordinary Time Earnings
While the list of payments that make up OTE is long, it’s essential to note what shouldn’t be included as OTE:
- Reimbursements for work expenses
- Bonuses or payments that aren’t tied to an employee’s working hours
- Payments made to a contractor instead of an employee
- Salary sacrificed amounts
These payments or reimbursements don’t count as OTE for SG purposes.
Employers’ SG Obligation
Employers must pay SG to employees who are 18 years of age or older and earning a minimum of $450 (before tax) per month. The SG contribution is currently set at 9.5% of an employee’s OTE and is expected to increase gradually to 12% by July 2025.
| Financial Year | SG rate |
|---|---|
| 2020-21 | 9.5% |
| 2021-22 | 10% |
| 2022-23 | 10.5% |
| 2023-24 | 11% |
| 2024-25 | 11.5% |
| 2025-26+ | 12% |
Employers who fail to make the required SG contributions may face penalties and interest charges from the ATO. They may even be required to make back payments to employees to rectify the situation fully.
Employers and employees must, therefore, fully understand what payments constitute OTE, and employers must maintain accurate records of their employees’ entitlements and superannuation contributions to avoid any legal disputes.
Overtime Pay and Ordinary Time Earnings
When calculating an employee’s ordinary time earnings (OTE), overtime pay is one of the factors considered. In Australia, employees are entitled to be paid at a higher rate for any overtime hours worked, which is usually time and a half or double time. However, it’s important to understand how these overtime payments are included in the calculation of OTE.
- Overtime payments included in OTE: In Australia, all overtime payments are included in an employee’s OTE, unless they are stated to be an “exempt payment” under the legislation. This means that any overtime hours worked and the resulting overtime payment, will be calculated as part of the employee’s OTE and will be taken into account when determining their entitlements, such as annual leave and superannuation.
- Exempt overtime payments: There are some types of overtime payments that are exempt from being included in an employee’s OTE. These include payments that are for reasonable overtime (where the employee is paid the base rate of pay for any overtime hours worked), and payments that are for overtime meal allowances, shift allowances or other similar allowances.
- Calculating overtime for part-time employees: Overtime for part-time employees is calculated differently to full-time employees. Part-time employees are entitled to overtime when they work in excess of their agreed hours, which is usually calculated as a proportion of the normal hours worked by full-time employees doing the same job. For example, if a part-time employee works 20 hours a week in a job where the full-time equivalent works 40 hours, they would be entitled to overtime for any hours worked over 20-hours a week.
Overtime pay rates
It’s important to understand the overtime pay rates when calculating an employee’s OTE. In Australia, the overtime rate is generally time and a half for the first two hours of overtime worked, and double time for any additional hours worked.
The following table shows the overtime pay rates for full-time and part-time employees:
| Overtime Hours | Full-time Employee | Part-time Employee |
|---|---|---|
| First 2 hours | 1.5 x base rate of pay | 1.5 x pro rata base rate of pay |
| Additional hours | 2 x base rate of pay | 2 x pro rata base rate of pay |
Understanding the inclusion of overtime payments in OTE is important for both employers and employees. Employers need to ensure that they are correctly calculating an employee’s entitlements, while employees need to understand what is included in their OTE and what they are entitled to be paid for overtime.
Superannuation and Ordinary Time Earnings
Superannuation is a vital part of the Australian retirement system, which is designed to provide financial assistance to workers after they retire. Most Australian employers are required by law to make superannuation contributions for their employees, which is calculated as a percentage of their ordinary time earnings. This means that understanding ordinary time earnings is crucial for both employers and employees to ensure they are meeting their superannuation obligations and maximizing their retirement savings.
- Ordinary time earnings include all earnings an employee receives for their ordinary hours of work, such as wages, salaries, commissions, bonuses, and allowances. These are generally paid on a weekly or fortnightly basis and do not include overtime pay, annual leave, or personal leave.
- Superannuation contributions are based on a percentage of an employee’s ordinary time earnings, which is known as the superannuation guarantee (SG) rate. The current SG rate is 9.5% and is set to increase gradually over the next few years.
- Employers are required to make superannuation contributions for eligible employees at least quarterly and pay the contributions to the employee’s chosen superannuation fund. Failure to do so can result in penalties and fines.
In addition to the SG rate, employers may also choose to make additional contributions to their employees’ superannuation funds. These additional contributions are known as salary sacrifice contributions and allow employees to contribute a portion of their before-tax income to their superannuation fund. This can be a tax-effective way to boost retirement savings and reduce taxable income.
To help employers and employees calculate superannuation contributions accurately, the Australian Taxation Office (ATO) provides a range of tools and resources, including the SG calculator and the small business superannuation clearing house. These tools can help ensure compliance with superannuation laws and regulations, and make it easier for employers to meet their superannuation obligations.
| Item | Description |
|---|---|
| Ordinary time earnings | All earnings an employee receives for their ordinary hours of work, such as wages, salaries, commissions, bonuses, and allowances. Does not include overtime pay, annual leave, or personal leave. |
| Superannuation guarantee (SG) rate | The current SG rate is 9.5% and is set to increase gradually over the next few years. |
| Salary sacrifice contributions | Additional superannuation contributions made by employers on behalf of their employees. |
| SG calculator | A tool provided by the ATO to help employers and employees calculate superannuation contributions accurately. |
| Small business superannuation clearing house | A tool provided by the ATO to help small businesses meet their superannuation obligations more easily. |
In summary, understanding ordinary time earnings and superannuation is crucial for both employers and employees. Employers must ensure they meet their superannuation obligations by making regular contributions based on the SG rate and any additional salary sacrifice contributions. Employees can use these contributions to build their retirement savings and reduce taxable income. By using the tools and resources provided by the ATO, employers and employees can ensure compliance with superannuation laws and regulations and maximize retirement savings.
Deductions from Ordinary Time Earnings
As an employee, your ordinary time earnings (OTE) are subject to various deductions. These deductions are essential components of your overall tax liability and help ensure that you remain compliant with the law. Here are some of the most common deductions from OTE:
- Superannuation contributions: Your employer is generally required to contribute an additional 9.5% of your OTE to your super fund. These contributions are known as mandatory employer contributions and are intended to help fund your retirement.
- Income tax: Your OTE is subject to income tax. The amount of tax you pay depends on the level of your income and your individual tax circumstances.
- Medicare levy: If you are an Australian resident for tax purposes, you may be required to pay the Medicare levy to help fund the nation’s public health system.
- HELP debt repayments: If you have a HELP debt, your employer may be required to withhold extra tax from your OTE to help repay your debt. The amount of extra tax withheld depends on the size of your debt and your income level.
- Child support payments: If you are required to pay child support, your employer may be required to withhold the relevant amount from your OTE and pay it directly to the Department of Human Services.
It’s worth noting that your OTE can also be affected by other factors, such as salary sacrifice arrangements or fringe benefits. If you have any questions about the deduction of OTE or your tax liability, it’s worth seeking advice from a qualified tax professional.
If you’re interested in seeing an overview of how deductions impact your take-home pay, have a look at the table below:
| Deduction type | Amount |
|---|---|
| Superannuation contributions | 9.5% of OTE |
| Income tax | Varying – depends on income and tax circumstances |
| Medicare levy | Varying – depends on income and tax circumstances |
| HELP debt repayments | Varies – depends on debt size and income level |
| Child support payments | Varies – depends on child support liability |
As you can see, understanding the various deductions from your OTE is critical if you want to stay on top of your tax affairs. Keep these deductions in mind the next time you receive your payslip, and seek advice from a tax professional if you have any questions or concerns.
How to Calculate Ordinary Time Earnings
If you’re an employer, it’s important to know how to calculate ordinary time earnings (OTE) for your employees. OTE refers to the amount of money an employee is entitled to be paid for their normal working hours. Calculating OTE can be a bit tricky, but once you understand the basics, it becomes much easier.
- The first step in calculating OTE is to determine the employee’s base rate of pay. This is the employee’s hourly rate or salary, not including any bonuses or allowances.
- Next, you’ll need to determine the employee’s ordinary hours of work. This includes any hours worked during weekdays and weekends but excludes any overtime.
- Multiply the employee’s base rate of pay by their ordinary hours of work to get their ordinary time earnings.
Here’s an example:
Let’s say an employee’s base rate of pay is $25 per hour. They work 38 hours per week, with 8 hours worked on Saturday.
To calculate their OTE, you would:
- Multiply the base rate of pay ($25) by the ordinary hours of work (30). The result is $750.
- Add any additional allowances, such as a living away from home allowance or a tool allowance.
It’s important to note that OTE does not include any other payments such as overtime rates, penalty rates, or bonuses. These payments are usually calculated separately and added to the employee’s OTE.
| Item | Amount |
|---|---|
| Base rate of pay | $25 per hour |
| Ordinary hours of work | 38 per week |
| Additional allowances | $50 per week |
| OTE | $950 per week |
In conclusion, calculating OTE is a crucial part of payroll calculations for employers. By understanding the basics of OTE, you can ensure that your employees are being paid the correct amount for their ordinary hours of work.
Importance of Accurately Recording Ordinary Time Earnings
Accurately recording ordinary time earnings plays a crucial role in many areas of business management. One of the most important reasons to keep track of ordinary time earnings is to ensure that employees are paid correctly and in accordance with their employment contracts and the relevant legislation. Failure to do so can result in severe legal consequences, such as employee claims and legal disputes. Additionally, keeping track of ordinary time earnings is necessary for calculating payroll tax and superannuation obligations.
- Preventing errors: Accurately recording ordinary time earnings can help prevent errors in payroll calculations, which can lead to errors in employee payments. These errors can be costly for businesses and can damage employee morale and trust.
- Staying compliant: Keeping track of ordinary time earnings is essential for ensuring that businesses comply with relevant legislation and regulations. For example, failing to pay employees correctly or neglecting superannuation obligations can result in significant financial penalties and legal disputes.
- Understanding labor costs: Accurately recording ordinary time earnings can help businesses understand their labor costs. This information can then be used to analyze business performance and make strategic decisions about hiring, staffing levels, and employee remuneration.
According to the Fair Work Ombudsman in Australia, ordinary time earnings include:
| Payments that are included in ordinary time earnings | Payments that are not included in ordinary time earnings |
|---|---|
| Common hourly rates of pay | Overtime payments |
| Allowances | Reimbursements |
| Commissions | Bonuses |
| Deductions made from gross wages | Superannuation contributions |
| Certain leave payments | Expenses incurred in relation to the employee’s work |
It is important for businesses to understand which payments are included in ordinary time earnings to ensure that their records are accurate and compliant with the relevant legislation.
FAQs: What is Included in Ordinary Time Earnings?
1. What exactly are ordinary time earnings?
Ordinary time earnings refer to the amount an employee has earned during their regular work hours, excluding any bonuses, overtime pay, and penalties.
2. Are commissions and allowances included in ordinary time earnings?
Yes, commissions, allowances, and other forms of incentive payments that an employee receives during their regular work hours are included in ordinary time earnings.
3. What about unused annual leave or sick leave?
Unused annual leave or sick leave is not included in ordinary time earnings because these are not considered as payments for work performed during regular working hours.
4. Do superannuation contributions form part of ordinary time earnings?
Yes, both employer and employee superannuation contributions make up a part of ordinary time earnings and are used to calculate an employee’s entitlements, such as leave.
5. If an employee works on a public holiday, how is this calculated in terms of ordinary time earnings?
If an employee works on a public holiday, it is considered as overtime, which means it is paid at a higher rate than ordinary time earnings.
6. Are termination payments included in ordinary time earnings?
No, termination payments such as redundancy pay or severance pay are not included in ordinary time earnings calculation.
7. How can an employer ensure that they are calculating ordinary time earnings correctly?
Employers should consult the Fair Work Ombudsman guidelines and seek professional advice to ensure they are correctly calculating ordinary time earnings and complying with relevant laws and regulations.
Closing: Thanks for Reading!
We hope this article has been helpful in shedding light on what is included in ordinary time earnings. Remember to consult with the Fair Work Ombudsman guidelines and seek professional advice to ensure you are calculating earnings correctly. Thanks for reading, and we invite you to visit our website again soon!