In a move that will allow SMEs to breathe a sigh of relief, the tax office has decided against extending superannuation payments to overtime work.
The decision comes after businesses and industry groups attacked a draft ruling from the tax office last November, claiming super on overtime would cost SMEs $1 billion a year.
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The ruling proposed extending the definition of “ordinary time earnings” to include overtime work, as well as maternity and paternity leave.
A ruling was made in July 2008 that forced the superannuation guarantee to be paid on ordinary time earnings. If the definition were extended to overtime, businesses would be forced to pay super for hours worked outside of regular schedules.
It would have meant that industries that encounter regular overtime schedules, such as the transport, manufacturing and natural resource sectors, would have been forced to pay super for overtime work.
But the tax office said yesterday that businesses are not obligated to pay superannuation for overtime work because the overall concept of salary and wages does not extend to overtime.
Heather Ridout, chief executive of the Australian Industry Group, says the ruling was a welcome one for small businesses.
“It was one of those really important issues for business, and frankly the draft ruling was not consistent with the spirit of the original legislation. It was a total misinterpretation, so I’m glad that sanity has prevailed,” she says.
“We’ve been lobbying the tax office to have this ruling overturned, and now they’ve changed it, it’s extremely good news – it was a billion dollar cost to industry.”
Council of Small Business Organisations of Australia chief executive Jaye Radisich also welcomed the move, telling The Australian Financial Review that the ruling “won’t burden [SMEs] with additional staffing costs in this recessionary climate”.
Opposition small business spokesman Steven Ciobo had attacked the proposal, and said in January that the Government should intervene in the ruling.
“This draft ruling could not come at a worse time for small business, driving up employment costs and directly threatening jobs,” Ciobo said.
“At a time when many small businesses are already struggling to manage their cashflow, this draft ruling will force small businesses to fork out additional payments which will massively increase their labour costs.”