Ordinary time earnings and the mechanics of your super obligations

Ordinary time earnings (OTE) is the concept the entire superannuation guarantee system is built on. It is the pay an employee earns for their ordinary hours of work, and it decides how much super you must pay on top of their wages. Classify it correctly and your super obligations run themselves. Get it wrong and the shortfall, interest and penalties can quickly exceed the few dollars you were trying to save.

Since 1 July 2026 the system has tightened considerably. Super guarantee (SG) must now be paid on each payday rather than quarterly, and it is calculated on a slightly broader base called qualifying earnings, of which ordinary time earnings is the core. This guide walks through what OTE actually is, what counts and what does not, how the calculation runs under the new rules, and where the traps hide. It is written for business owners and payroll managers who want to avoid an unexpected ATO assessment.

Who does what in the super system

The superannuation guarantee regime involves three actors with clear roles.

The employer: you work out each employee's OTE and qualifying earnings for the pay period, calculate 12% of that amount, and pay it to a complying super fund by the deadline.
The super fund: the fund receives the contribution and allocates it to the employee's member account. A contribution only counts if it is received with enough information to be allocated.
The ATO: the regulator that polices the system. If contributions are late or short, it assesses the superannuation guarantee charge (SGC), which is designed to cost more than simply paying the super in the first place.

The tension in the system is straightforward. Employers want to keep payroll costs down, while the law makes underpayment deliberately expensive. That is why the classification of OTE matters: it is the base on which everything else is calculated.

The statutory definition of ordinary time earnings

The definition of ordinary time earnings sits in s 6 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Act) (s 6). It is all of an employee's earnings made up of:

earnings in respect of ordinary hours of work; and
earnings consisting of over-award payments, shift loadings or commission;

other than a lump sum payment on termination for unused sick leave, unused annual leave or unused long service leave.

Two parts of that definition do most of the work.

First, "earnings in respect of ordinary hours of work" anchors OTE to the employee's ordinary hours, which are the hours fixed by their award, enterprise agreement or contract. Pay for hours outside that span is overtime, and overtime is not OTE. Second, the definition sweeps in over-award payments, shift loadings and commission even where they might otherwise be argued to fall outside ordinary hours. The exclusions are narrow: only certain lump sums paid on termination drop out.

Where ordinary hours are not stated in an award or agreement, or are not separated from other hours, the ATO treats all hours actually worked as ordinary hours. That single rule explains most OTE disputes, and we return to it below.

From 1 July 2026: OTE becomes part of qualifying earnings

The 2026 reforms did not abolish OTE. They folded it into a wider base. Since 1 July 2026 the minimum SG for each payday is calculated on an employee's qualifying earnings, which the Act defines in (s 10A) as ordinary time earnings plus:

all commissions payable to the employee, including commissions paid solely for work done entirely outside ordinary hours;
salary sacrifice amounts that would have been qualifying earnings had they been paid as cash;
payments to workers caught by the expanded definition of employee, such as independent contractors paid mainly for their labour, and payments for duties as a director.

For most employers the change is invisible in practice. The ATO's guidance is explicit that every payment that counted as OTE up to 30 June 2026 continues to count as qualifying earnings from 1 July 2026, and that the only genuinely new inclusion is commissions for work done entirely outside ordinary hours (qualifying earnings). If you pay sales commissions to staff whose hours fall outside a normal pattern, that is the main new exposure to check.

What counts as OTE and qualifying earnings

The ATO publishes non-exhaustive lists of what counts, and the themes are consistent. As a general rule, any payment that rewards work done during ordinary hours is in.

Salary and wages for ordinary hours: the base pay for rostered or contracted hours, including casual loading and shift penalties such as weekend and public holiday penalties.
Piece rates and daily rates: payments calculated by output or a flat daily rate count when the work is done within ordinary hours.
Allowances tied to ordinary hours: task allowances for higher duties, hourly on-call allowances paid during ordinary hours, and allowances that partly compensate for expenses count. An on-call allowance paid purely for availability outside ordinary hours does not.
Bonuses and commissions: performance bonuses, Christmas bonuses, sign-on and referral bonuses, and ex gratia payments made in respect of ordinary hours all count. Bonuses paid solely for work done entirely outside ordinary hours do not.
Paid leave that substitutes for ordinary hours: annual leave, personal and carer's leave, long service leave, rostered days off, time off in lieu paid at ordinary rates, study leave, special paid leave and gardening leave all count, because they replace ordinary hours the employee would otherwise have worked.
Paid public holidays: a public holiday that is not worked, or is worked as ordinary hours, counts.
Annual leave loading: counts, except the part clearly linked to a lost opportunity to work overtime.
Payment in lieu of notice: counts under the current rules, a point that surprises many employers and which we come back to in the traps section.
Back pay: an arrears payment counts to the extent it relates to ordinary hours, higher duties allowances and paid leave, but not to the extent it relates to overtime.

What does not count

The exclusions are just as important as the inclusions, because wrongly including an item inflates your payroll, while wrongly excluding one creates a shortfall.

Overtime payments: pay for hours outside the employee's ordinary hours is not OTE, provided the ordinary hours are clearly identified in an award or agreement. This applies even to so-called guaranteed overtime.
Allowances for availability outside ordinary hours: on-call and call-back allowances paid for hours outside ordinary hours do not count.
Bonuses for work entirely outside ordinary hours: a bonus that rewards work done wholly outside ordinary hours is treated as overtime and excluded.
Parental leave: both government paid parental leave and employer-funded paid parental leave are excluded.
Leave that does not substitute ordinary hours: jury duty, community service leave and defence reserve leave are excluded, as are workers compensation payments and make-up pay when the employee is not required to work.
Reimbursements and expense allowances: genuine reimbursements for expenses such as mileage or tools do not count, and neither do allowances paid with the reasonable expectation they will be fully spent.
Fringe benefits and other benefits: benefits such as employee share scheme rights are not qualifying earnings.
Termination payments: unused annual leave, annual leave loading, long service leave, personal leave, rostered days off and time off in lieu paid on termination are all excluded, regardless of the reason for termination. Redundancy payments and ex gratia payments made in consequence of termination are also excluded.
Overpayments: amounts an employee is required to repay are not qualifying earnings.

How the calculation runs: rate, cap and payday timing

With the classification settled, the arithmetic is simple. For each payday you take the employee's qualifying earnings for that pay period and apply the SG rate, which is 12% (s 17A). There is no upper age limit, and the rate applies regardless of how much the employee earns, up to the cap below.

The maximum contribution base

The maximum contribution base caps the earnings on which you must pay SG each financial year. For 2026-27 it is $270,830 per employee (maximum contribution base). It is worked out by the formula concessional contributions cap multiplied by 100, divided by the charge percentage, rounded down to the nearest $10, so it moves each year as the cap and rate change.

Once an employee's qualifying earnings for the year reach the cap, you stop paying SG for that employee for the rest of the year. The cap applies per employee per employer, and it does not limit extra super you are required to pay under an award or enterprise agreement.

Payday super: the 7 business day rule

Since 1 July 2026, SG is no longer a quarterly event. You must pay super for each payday, and the contribution must be received by the employee's fund within 7 business days after you pay the employee (payment deadlines). The payday is called the QE day, the day qualifying earnings are paid. A business day excludes weekends and any day that is a public holiday anywhere in Australia.

There are two practical extensions. The first contribution for a new employee, or to a new fund for an existing employee, has 20 business days. Out-of-cycle payments such as a one-off bonus can be grouped with the next regular payday's contribution, as long as they meet the ATO's criteria.

A quick example. An employee is paid a fortnightly wage of $3,000 for ordinary hours. SG is 12% of $3,000, or $360, and that amount must reach the fund within 7 business days of payday. Under the old quarterly system the same $360 could sit in your bank account for up to three months; under payday super it cannot.

Where the traps hide

Most OTE problems come from a handful of recurring situations.

Ordinary hours are not defined: If an award or agreement does not state ordinary hours, or does not separate them from other hours, all hours worked are ordinary hours and all pay is OTE. A clean definition of ordinary hours in your contracts and agreements is the cheapest insurance there is.
Annualised salaries hide overtime: An annual salary that absorbs overtime only protects you if the overtime component is clearly identifiable. If it is not, the ATO treats the whole payment as ordinary hours.
Guaranteed overtime is still overtime: Calling overtime "guaranteed" does not make it OTE, but you must be able to identify it separately in the payroll records.
Bonuses that straddle ordinary and non-ordinary hours: A bonus rewarding ordinary-hours performance is OTE. A bonus for work done entirely outside ordinary hours is not. If a bonus scheme covers both, the terms should separate them, otherwise the ATO may treat the whole bonus as OTE.
Payment in lieu of notice is now included: Many payroll guides still say payment in lieu of notice is not OTE. Under the current rules it is qualifying earnings, and super must be paid on it, while redundancy payments and unused leave paid on termination are not. The distinction matters on every termination.
Salary sacrifice does not reduce the base: Amounts sacrificed to super count as qualifying earnings, so you calculate SG on the pre-sacrifice figure. Sacrificing overtime or parental leave pay does not attract SG, but sacrificing ordinary wages does.
Parental leave is excluded from both sides: Neither government nor employer-funded parental leave attracts SG, so topping it up voluntarily is a choice, not an obligation.

If you pay late: the superannuation guarantee charge

The system's teeth are in the superannuation guarantee charge. If a contribution is not received on time, the SGC applies, and it is deliberately more expensive than paying the super.

The charge has three components (ss 18C, 19A, 19B):

The base shortfall: 12% of the employee's qualifying earnings for the payday, less any eligible contributions that can be applied;
A notional earnings component: interest on the outstanding shortfall, calculated at the general interest charge rate, running from the day after the due date until the ATO assesses the charge; and
An administrative uplift: 60% of the shortfall and notional earnings components combined, which replaces the old flat administration fee.

The SGC is imposed by the Superannuation Guarantee Charge Act 1992 (Cth) (s 6) and it is a liability to the Commonwealth, not to the employee's fund. If you then fail to pay the charge, further penalties of 25% of the unpaid amount, or 50% for repeat failures, can apply under s 59C of the Act.

The practical message is blunt. A small classification error compounds: the shortfall, then interest at the general interest charge rate, then a 60% uplift, then possible penalties. That is why the ATO describes the SGC as costing more than simply paying the super on time.

Where a lawyer can help

None of this requires a lawyer for a straightforward payroll, but the classification decisions are where professional help earns its keep.

Defining ordinary hours: a lawyer can review your employment contracts, awards and enterprise agreements to make sure ordinary hours, overtime and rostering are defined in a way that matches how your business actually runs.
Bonus and commission plans: if you pay performance bonuses or commissions, the plan should state what period of work the payment relates to. Getting the drafting right at the start avoids a whole class of disputes.
Allowance structures: the label on an allowance matters less than its purpose. A lawyer can help structure allowances so their OTE treatment is clear on the face of the document.
Payroll mapping: a lawyer working with your payroll team can produce a payment-by-payment OTE matrix, so every allowance, loading and bonus has a documented treatment.
Responding to an SGC assessment: if the ATO assesses a charge, early advice can limit the damage, including whether contributions can still be applied to reduce the shortfall and whether disclosure options are available.

The common thread is timing. Classification questions are cheap to resolve on paper before a payday and expensive after an assessment.

The definition of ordinary hours is the whole game

If there is one detail a court or the ATO actually weighs in this area, it is the definition of ordinary hours in your contracts and agreements. Every other question, whether a bonus counts, whether an allowance is OTE, whether a payment is overtime, resolves back to that definition. Under payday super, errors surface within days of each payday, not once a quarter, so there is no quiet season to fix them in.

A half-day review of your contracts and payroll settings, with the definitions checked against how your rosters actually run, costs a fraction of a single SGC assessment with its interest and 60% uplift. If you are not certain your OTE classifications are right, that review is the place to start, and a consultation with a lawyer who does this daily is a reasonable next step.