Salary calculation methods

There are two methods for calculating the super salary for employees:

1. Fortnightly Contribution Salary (FCS); and

2. Ordinary Time Earnings (OTE).

FCS is used for CSS and PSS, and is the default method of salary calculation for PSSap. It should be used for every PSSap member where OTE is not specified in a relevant agreement or determination.

Fortnightly Contribution Salary (FCS)

In CSS, PSS and PSSap (FCS), salaries are set when your employee starts a new period of scheme membership, and are generally only updated once per year, on their birthday. This means that super salaries don’t change between birthdays, even where there has been a change to your employee’s take home pay.

The process of checking your employee’s salary and making any necessary adjustments is known as a salary review, or a birthday review.

At the salary review, you should determine your employee’s super salary as the highest of:

1. the super salary at your employee’s last review;
2. the highest amount of base salary plus recognised allowances received from their last review to the current review; or
3. the base salary plus recognised allowances that they are receiving at the date of the current review.

You also need to complete a salary review whenever a CSS member ceases their membership (for example by resigning, being made redundant or retiring), and whenever a PSS member ceases employment due to redundancy.

This final review takes into account any changes to their super salary since the last salary review.

Ordinary Time Earnings (OTE)

You can use OTE to calculate super salary for your PSSap employees if it is specified in a relevant agreement or determination. This includes enterprise agreements, remuneration determinations and workplace determinations.

The rules around what should be included in or excluded from a person’s OTE are maintained by the Australian Taxation Office. Generally speaking, OTE includes any earnings that your employee earns during ordinary hours of work. This can include payments like over-award payments, shift loading, annual leave loading, bonuses, and most allowances. OTE excludes overtime payments.

We can provide limited information about your obligations under OTE and super guarantee legislation. We recommend that you seek further information about your obligations directly from the Australian Taxation Office. You may also wish to refer to the Commissioner of Taxation’s Superannuation Guarantee Rulings, including ruling SGR2009/2, in order to gain a better understanding of your obligations.

Maximum contribution base

The maximum contribution base is a cap on the amount of payments made to an employee that are considered to be earnings. This means that you aren’t required to pay contributions on earnings above that amount for employees whose contributions are based on OTE, but can if you want to. The amount is determined by the ATO and will change from year to year.

The maximum contribution base doesn’t apply to CSS, PSS, or PSSap FCS members, which means you’re still required to contribute based on their entire super salary.

Changing between OTE and FCS

When a PSSap member transfers from employment where OTE is used to employment where FCS is used, contributions are made as though the membership had always used FCS.

This means that the new employer will need to complete salary reviews for the entire period that OTE was used to account for any salary reductions that may have occurred. If there was a salary reduction while the employee membership was using OTE, the salary maintenance rules will apply.

The previous employer (where OTE was used) will need to provide the individual’s full salary history to their new employer to assist with that review process. An employee can continue to have contributions calculated using OTE if you agree to it in an individual agreement.

Salary for insurance

lifePLUS cover includes income protection insurance, as well as total and permanent disability and death cover.

The level of income protection offered to PSSap members and the associated insurance premiums are calculated using the individual's insurance salary. This is the amount on which their pay is based when on full time sick leave.

What you need to do

For members with lifePLUS auto, insurance salaries are reported to us in your pay file (also known as a SAFFE) through Super Stream. It is important that you provide us with the correct insurance salary when your employee joins your agency, and you update it each time it changes. You don’t need to wait for your employee’s birthday to update their insurance salary, even if their contributions are based on FCS.

If you don’t provide us with an insurance salary, a default salary of $47,000 will be applied to your employee’s account. The amount payable to a person with an accepted income protection claim is calculated based on the lesser of their actual salary for insurance at the relevant time and the insurance salary advised to us. This means that incorrectly reporting (or not reporting) insurance salaries can result in an employee receiving less than they expect if they need to make a claim.

Members with lifePLUS choice cover are responsible for updating their own insurance salaries. It’s just as important that they notify us of any changes to their earnings for the same reasons above.

Salary maintenance

What is a salary reduction?

Generally speaking, super salaries for CSS, PSS and PSSap (FCS) members cannot decrease. If your employee has a salary reduction, the salary maintenance rules will apply.

The definitions of ‘salary reduction’ are:

CSS

A salary reduction happens any time the salary (including recognised allowances) on a person’s birthday is lower than the highest salary (including recognised allowances) they received in the previous year.

PSS and PSSap (FCS)

A salary reduction happens any time there is a reduction in the sum of hourly base salary plus recognised allowances.

Salary indexation and AWOTE

When an employee has had a salary reduction, the salary they were receiving immediately before the reduction will be indexed each year at the salary review. This indexed salary is called a maintained salary.

Maintained salaries are increased in line with average weekly ordinary time earnings (AWOTE). AWOTE is published by the Australian Bureau of Statistics, and reflects the average weekly ordinary time earnings for Australian adults in full-time employment.

The AWOTE we use to work out maintained salaries is updated twice per year in February and August. Before February 2013 AWOTE was updated quarterly in February, May, August and November.

The AWOTE Calculator

We provide employers with an AWOTE calculator to help calculate maintained salaries. The calculator is updated with the latest AWOTE twice per year, and is available on our website. To avoid the risk of reporting incorrect salaries, we strongly recommend that you download the calculator each time you need to perform a salary review.

You should never use an AWOTE calculator that has passed the 'next expected release date' indicated at the top of the calculator. If you use a calculator past this date it will not take into account the latest AWOTE rate and may give an incorrect result.

You can find instructions on how to use the calculator in the AWOTE calculator quick guide.

Stopping salary maintenance

You should continue salary maintenance at each salary review until your employee’s base salary and recognised allowances is either equal to or higher than the maintained salary on the review date.

Salary reviews for employees receiving shift allowance

We've got a page with what you need to know when it’s time to complete a salary review for a shift worker.

Salary reviews for employees receiving shift allowance

Backdated pay increases

How do backdated pay increases impact salary for super?

On occasion, employees may receive a backdated pay increase because of a new agreement. This may result in their superannuation salary being backdated to a point prior to their birthday review or their cessation of employment.

The impact on the employee’s salary for super depends on the scheme they are a member of.

Rules for allowances

Super salary in CSS, PSS and PSSap generally only include ‘recognised allowances’. Allowances can be divided into two categories based on when they become ‘recognised’. These are commonly known as automatic allowances and qualifying allowances.

Shift allowance

When to include shift allowance in super salary

Before including shift allowance in your employee's salary on a particular day, you should check that the following two conditions have been met:

1. The employee's period of membership has been greater than 12 months,
2. The employee has received shift allowance on a regular basis for the 12 months immediately before that particular day.

Membership greater than 12 months

The first test that you need to look at is whether your employee’s period of membership has been greater than 12 months.

If the individual had continuous service when they started work with your organisation, this 12 month period can include time at their previous employer.

Regular basis

The second test that you need to look at is whether shift allowance has been payable to the employee on a regular basis—this means that shift allowance has been payable in 75% or more pay periods in the 12 months immediately prior to the date in question.

Super salary calculation for shift allowance

If your employee has met the eligibility criteria to have shift allowance included on a particular day, their super salary will be the lowest of:

A x B and C + D.

A ‘particular day’ is any day that you need to know an employee’s salary. This could be:

• the end of each pay period;
• your employee’s birthday;
• the date of exit for CSS members;
• the date of exit for PSS members (if they are exiting because of a redundancy).

It is not sufficient to only calculate the A x B and C + D on the day that your employee qualifies to have shift allowance included, or on the employee’s birthday.

The definitions of A, B, C and D are below. They differ slightly depending on whether the employee works full or part time:

• A is the highest amount of fortnightly salary paid or payable to your employee in any pay period during the 12 month period.

  This includes shift allowance.

• B is the number of pay periods included in the last 12 months.

  To work out this number you will need to apply the following principles:

  • If the start of the 12 month period is the start of a pay period, but the end of that period is not the end of a pay period, don’t count the last pay period.
  • If the start of the 12 month period is not the start of a pay period, but the end of that period is the end of a pay period, don’t count the first pay period.
  • Where the start of the 12 month period is not the start of a pay period, and the end of that period is not the end of a pay period, count the first pay period but not the last.

• C is the annual rate of salary that would be payable to the person on the particular day if shift penalties were not included.

• If your employee was a full-time employee for super purposes, D is the total amount of shift allowance earned in the previous year. If the hourly rate of the shift changed in that year, calculate D by multiplying total hours worked for each unique rate by its corresponding rate and summing the results. This only applies if the rate itself changed, it does not include the hourly rate change by virtue of a salary increase.

  If your employee was an approved part time employee at any time since the last review, you will need to multiply D calculated above by FTH/PTH.

  Where: FTH is the full time hours for the position and PTH is the part time hours for the position.