Superannuation ruling could cost businesses $1 billion

Business is bracing for a multimillion dollar employment cost blowout after a draft ruling from the Australian Taxation Office that will force employers to pay superannuation contributions on overtime, paternal leave and other allowances.

The Shadow Minister for Small Business, Steve Ciobo, has warned the decision could costs thousands of jobs, while the Australian Industry Group says the cost to industry for paying super on overtime would be more than $1 billion each year.

“This draft ruling could not come at a worse time for small business, driving up employment costs and directly threatening jobs,” Ciobo says.

Under the ruling, released late last year, the ATO has effectively widened the definition of ordinary time earnings (OTE) to include overtime and maternity and paternity leave.

Law firm Mallesons Stephen Jaques describes the ruling a “a significant about face” in that that ATO is decreeing that an employee’s ordinary hours of work are actually “the hours of work during which it is usual for the employee to work”, rather than the hours prescribed in an agreement or award.

That means workers in industries such as mining, manufacturing and transport, where overtime is standard, are entitled to get super paid on their overtime.

Mallesons partner John Edstein says the draft ruling comes after another major change to superannuation guarantee rule that came into force on 1 July, 2008 and made it mandatory for superannuation guarantee to be paid on OTE. Previously, some employers had been able to pay less than the 9% superannuation guarantee under grandfathering provision that allowed them to pay superannuation on earnings base from awards that were in place before the superannuation guarantee was introduced in 1990.

For example, many employers did not include sales commission in regular earnings, so did not have to pay super on these commissions.

“That itself would have cost a lot of businesses a lot of money,” Edstein says.

“Now given that we now have everybody on a level playing field, the ATO is now looking at the question of what OTE actually is.”

The ruling is currently in draft form, although Ciobo expects a final ruling to be in place by 1 July.

He wants the Government to intervene.

“At a time when many small businesses are already struggling to manage their cash flow, this draft ruling will force small businesses to fork out additional payments which will massively increase their labour costs.”

“The Rudd Labor Government constantly talks about acting swiftly and decisively and being concerned about employment. Yet Labor has been silent on this new ATO ruling. The Government needs to wake up and unambiguously rule out the changes proposed by the ATO.”

A spokesman for the Federal Minister for Superannuation and Corporate Law, Nick Sherry, says the minister is looking at the issue.