You’ve probably heard of Ordinary Time Earnings, but you might not be 100% clear on what it covers. Youโre not alone. Getting OTE wrong is one of the most common reasons business owners underpay super, leading to headaches and potential penalties down the line. But it doesnโt have to be complicated.
Think of this as your guide to getting it rightโa straightforward look at what OTE is, what payments count, and why it matters so much for your business and your team. Get your terms right before Payday Super starts next year!
What exactly are Ordinary Time Earnings (OTE)?
OTE is the amount you pay an employee for their โordinary hours of workโ. This is the baseline pay your team earns for their standard work week, and itโs the figure you must use to calculate their minimum superannuation guarantee (SG) entitlement. The rules for what counts as OTE are set out in the Superannuation Guarantee (Administration) Act 1992.
Itโs not just their base salary or wage. OTE also includes other payments like commissions, shift loadings, and some allowances.
Itโs also useful to know the difference between OTE and โsalary and wagesโ. While they are very similar, โsalary and wagesโ is a broader term that also includes overtime payments. You generally only need to worry about calculating super on โsalary and wagesโ if you miss a super payment deadline and have to pay the super guarantee charge (SGC). For your regular, on-time super payments, OTE is the number you need.
What payments are included in OTE?
OTE includes an employee’s regular salary or wages, along with payments like commissions, shift loadings, most bonuses, and certain allowances. Most types of paid leave, such as annual, sick, and long service leave, are also considered OTE.
This is where things can feel a bit tricky, but letโs break it down into each category. The key is to connect the payment back to an employeeโs ordinary hours.
Your employee’s regular pay
This is the most straightforward part of OTE. Itโs the regular compensation an employee receives for their normal hours.
- Standard salary or wages: Payments for an employeeโs ordinary hours of work are always OTE.
- Casual loading: The extra amount paid to casual employees is included in OTE.
- Shift penalties and loadings: If your employees get paid extra for working specific shifts (like weekends or public holidays) as part of their normal roster, that loading is OTE.
- Commissions and bonuses: Most commissions and bonuses are considered OTE. This includes performance bonuses, Christmas bonuses, and referral bonuses. The only exception is a bonus paid specifically for work performed entirely outside of ordinary hours.
- Piece rates: If you pay employees based on how much they produce (e.g., fruit picking) during their ordinary hours, these payments are OTE.
- Directors’ fees: Fees paid to a working or non-working company director are also counted as OTE.
Letโs look at a real-world example. Imagine you have an employee, Kim, who works in your call centre. Her contract states a minimum number of hours, but she often picks up extra shifts when itโs busy. Because thereโs no formal agreement that defines her ordinary hours or pays her a special overtime rate for those extra shifts, all the hours she works are considered her ordinary hours. That means her entire wage payment is OTE.
Paid leave
For the most part, if youโre paying an employee while theyโre on leave, that payment is OTE. Youโre essentially paying them for the ordinary hours they would have worked.
These types of paid leave are included in OTE:
- Annual leave
- Sick, personal, and carerโs leave
- Long service leave
- Family and domestic violence leave
- Study leave and other special paid leave
- Payments for rostered days off (RDOs) taken as leave
However, there are a few important exceptions to watch out for.
These types of paid leave are NOT OTE:
- Employer-paid or government-paid parental leave: Payments like maternity, paternity, or adoption leave are not considered OTE.
- Community service leave: This includes leave for voluntary emergency services or jury duty.
- Workers’ compensation: If an employee is receiving workers’ compensation payments for hours they are not at work, these payments are not OTE. This includes any top-up pay you provide to bring their payment up to their normal wage. However, if they are back at work on light duties, any payment you make for the hours they actually work is OTE.
- Annual leave loading: This one has a specific rule. If the leave loading is clearly linked to a “lost opportunity to work overtime,” it is not OTE. In all other cases, annual leave loading is OTE.
Allowances
Allowances can be tricky. Whether an allowance is OTE depends entirely on its purpose. The general rule is to ask: Is this allowance paid for an employee’s exceptional skills, for working in difficult conditions, or is it to cover an expense?
These allowances are included in OTE:
- Task allowances: Paid to recognise a higher skill level or specific duty, like a first aid allowance, leading hand allowance, or higher duties allowance.
- Conditional allowances: Paid for working in adverse or dangerous conditions, such as allowances for working at heights, in confined spaces, or in the heat.
- Partial expense allowances: Allowances that only partially compensate an employee for an expense, or are paid regardless of whether the employee incurs the expense, are OTE.
These allowances are NOT OTE:
- Expense allowances: An allowance is not OTE if it’s paid with the reasonable expectation that the employee will fully spend it on work-related expenses. A common example is a tool allowance. If you pay your trade employee Matteo a tool allowance under his award, and it’s expected he will use all of it to buy and maintain his tools, you donโt pay super on that allowance.
Termination payments
When an employee leaves your business, most of the payments you make to them are not considered OTE.
Here’s the one big exception:
- Payment in lieu of notice: This is a payment made when you don’t require an employee to work out their notice period. This payment is OTE, and you must pay super on it.
For example, Michaelโs job is made redundant, and his last day is today. As part of his final pay, you give him $10,000 in lieu of the four weeks’ notice he was entitled to. You must calculate and pay super on that $10,000.
Payments on termination that are NOT OTE include:
- Unused annual leave, long service leave, or personal leave.
- Redundancy or severance payments.
- A “golden handshake” or other gratuity payment.
What payments are excluded from OTE?
The most common payments excluded from OTE are overtime, provided ordinary hours are clearly defined in an award or agreement. Other exclusions include most termination payments (except payments in lieu of notice), paid parental leave, and expense allowances expected to be fully spent.
Weโve covered some exclusions already, but it helps to have a clear list of the most common payments that you donโt need to calculate super on.
Overtime payments
This is the big one. Payments for work performed outside an employee’s ordinary hours are generally not OTE.
However, thereโs a catch. For a payment to be considered overtime, the employeeโs ordinary hours of work must be clearly stated in their award or employment agreement. If you can’t clearly separate overtime hours from ordinary hours, then all hours they work might be considered ordinary, making the entire payment OTE.
Let’s say your employee, Pierre, is contracted for 38 ordinary hours a week, with any extra hours paid as overtime. He regularly works a 48-hour week, so you pay him for 38 ordinary hours and 10 hours of overtime. You only need to pay super on the 38 hours of ordinary pay. The payment for the 10 overtime hours is not OTE.
Similarly, if you give a bonus that is solely for work performed outside of ordinary hours, that bonus is not OTE. For instance, if your IT team works on a Sunday (outside their normal hours) to hit a project deadline and you give them a bonus just for that Sunday work, that bonus is not OTE.
Other key exclusions
To recap, other common payments that are not OTE include:
- Reimbursements for expenses.
- Most termination payments (except for payment in lieu of notice).
- Paid parental leave.
- Payments for jury duty or community service leave.
How does salary sacrificing affect OTE?
When an employee salary sacrifices, you must still calculate their superannuation based on their OTE before the sacrificed amount is deducted. Essentially, any salary that would have been OTE is still included for the purpose of calculating their super guarantee entitlement.
Salary sacrificing is a popular arrangement, but it adds a layer to your OTE calculations.
- If an employee sacrifices salary that would have been OTE: The sacrificed amount is still included in their OTE for super calculation purposes. For example, if an employee on a $90,000 salary sacrifices $10,000 into their super fund, you still calculate their SG based on the full $90,000.
- If an employee sacrifices salary that would not have been OTE: The sacrificed amount is not included in their OTE. For instance, if they sacrifice an overtime payment or a lump sum termination payment, you donโt add that back into their OTE for super calculations.
Why is getting OTE right so important for your business?
Getting OTE right is about more than just ticking a box. It’s fundamental to meeting your superannuation obligations. Your Superannuation Guarantee (SG) contributionsโthe 12% you must pay into your eligible employees’ super funds (as of 1 July 2025)โare calculated directly from their OTE.
If you miscalculate OTE, you miscalculate super. Failing to pay the right amount on time can result in penalties from the ATO, known as the super guarantee charge (SGC). The SGC includes the super shortfall, interest, and an administration fee, and itโs not tax-deductible.
Beyond compliance, paying the correct super is about doing the right thing by your team. Itโs a key part of their financial future, and getting it right shows that you value their contribution and are a responsible employer.
A quick checklist for your next pay run
Feeling a bit overwhelmed? Letโs turn this into an actionable checklist. Before your next pay run, take a moment to ask yourself these questions:
- Have I reviewed my employment agreements? Check that each employeeโs ordinary hours of work are clearly defined. This is your foundation for separating out any overtime payments.
- Have I classified all payments correctly? Look at every payment type you makeโbonuses, allowances, leave paymentsโand check whether it falls into the OTE category. Use the lists in this guide as a starting point.
- Am I handling salary sacrifice correctly? For any employee with a salary sacrifice arrangement, double-check that you are calculating their super on their OTE before the sacrifice is made.
- Am I keeping good records? Documenting how youโve calculated OTE for each employee can save you a lot of trouble if you ever need to explain your process to the ATO.
- Do I need help? Payroll can be complex. If youโre ever unsure about a specific payment, donโt guess. Itโs always a good idea to seek advice from an accountant or payroll professional.
Struggling to keep up with all these OTE rules? Managing payroll feels overwhelming when you have a business to run. The right payroll software can automate these calculations, ensuring you get your super contributions right every time. It gives you back your time and the confidence to focus on what you do bestโgrowing your business.