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Understanding the Shift from OTE to QE in ATO's Payday Super Rules and Its Impact on Reporting

  • Writer: BBDB
    BBDB
  • 2 days ago
  • 3 min read

The Australian Taxation Office (ATO) has updated the rules for calculating Super Guarantee (SG) contributions under the Payday Super system. This change affects how employers calculate their superannuation obligations. Instead of using Ordinary Time Earnings (OTE) as the base, the calculation now uses Qualifying Earnings (QE), which covers a broader range of payments. This shift impacts payroll reporting, compliance, and how businesses manage their super contributions.


This post explains what Qualifying Earnings include, how they differ from Ordinary Time Earnings, and how payroll systems like Xero support businesses in meeting these new requirements. Understanding these changes is essential for employers to ensure accurate super payments and reporting.



What Are Qualifying Earnings and How Do They Differ from Ordinary Time Earnings?


Ordinary Time Earnings (OTE) traditionally included payments for hours worked during ordinary hours, certain paid leave, shift allowances, and some bonuses. Employers calculated super contributions based on these earnings.


Qualifying Earnings (QE) is a broader category introduced to capture a wider range of payments for SG purposes. QE includes:


  • Ordinary Time Earnings (OTE): Standard hours, many paid leave types, shift work allowances, and bonuses.

  • All Commissions: Every type of commission paid to an employee, regardless of when it is earned.

  • Salary Sacrifice Contributions: Amounts that would count as earnings if paid in cash, even if salary sacrificed.

  • Payments to Independent Contractors: Certain contractors treated as employees for SG purposes, especially those paid mainly for their labour.


This broader base means employers must consider more payment types when calculating SG contributions, potentially increasing their super obligations.



Why the Shift to Qualifying Earnings Matters


The move to QE aims to make super contributions fairer and more consistent. Some payments previously excluded from SG calculations are now included, ensuring workers receive super on a wider range of earnings.


For employers, this means:


  • Reviewing payroll categories to correctly identify which payments count as QE.

  • Adjusting payroll systems to calculate SG contributions based on QE.

  • Reporting QE and SG contributions accurately through Single Touch Payroll (STP).


Failing to comply can lead to underpayment of super and penalties from the ATO.



How to Review and Manage Qualifying Earnings in Xero Payroll


Xero Payroll has adapted to the ATO’s Payday Super rules by adding features to help employers manage QE and SG reporting.


Pay Item Mapping


Each pay item in Xero Payroll must be reviewed and mapped correctly to indicate whether it counts as Qualifying Earnings. This includes:


  • Checking existing pay codes for correct QE status.

  • Updating pay items such as commissions, bonuses, and salary sacrifice amounts.

  • Ensuring payments to eligible contractors are included where applicable.


Reviewing Default Settings


Xero provides default settings for many pay items, but employers should double-check these to avoid errors. For example, some bonuses or allowances might not be marked as QE by default but should be included.


Reporting to the ATO


Under Payday Super rules, employers must report QE and super contributions each pay cycle through STP. This replaces quarterly reporting and requires timely, accurate data submission.



Eye-level view of a computer screen showing payroll software with superannuation settings
Xero Payroll interface displaying Qualifying Earnings settings


Practical Examples of Payments Included in Qualifying Earnings


To clarify what counts as QE, here are some examples:


  • Standard hours worked: Regular wages for ordinary hours.

  • Paid leave: Annual leave, personal leave, and long service leave paid during ordinary hours.

  • Shift allowances: Extra pay for working outside normal hours.

  • Bonuses: Performance bonuses paid regularly.

  • Commissions: Sales commissions paid to employees.

  • Salary sacrifice: Contributions made from pre-tax salary.

  • Contractor payments: Payments to contractors who are effectively employees for SG purposes.


For instance, if an employee receives a $1,000 commission in a pay cycle, that amount must be included in QE for SG calculation. Similarly, if a contractor is paid mainly for labour, their payments may also attract SG obligations.



Steps Employers Should Take to Comply with Payday Super Rules


  1. Audit Payroll Categories: Review all pay items and ensure they are correctly classified as QE or non-QE.

  2. Update Payroll Software: Use Xero or other payroll systems to map pay items correctly.

  3. Train Payroll Staff: Ensure staff understand the new rules and how to apply them.

  4. Report Through STP: Submit QE and SG contributions each pay cycle, not quarterly.

  5. Consult the ATO Guide: Refer to the ATO Qualifying Earnings Guide for detailed information.

  6. Seek Professional Advice: If unsure about contractor status or pay items, consult a payroll expert or accountant.



Impact on Business Cash Flow and Planning


Because super contributions must be paid each pay cycle, businesses need to plan cash flow accordingly. The broader base of QE may increase super liabilities, so budgeting for these payments is critical.


Employers should:


  • Monitor payroll reports regularly.

  • Forecast super payments based on QE.

  • Adjust financial planning to accommodate more frequent super payments.



Resources for Further Information


 
 
 

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