What Is Ordinary Time Earnings? A 2026 Business Guide

Put simply, Ordinary Time Earnings (OTE) is the payment an employee receives for their normal or standard working hours. It’s the core salary or wage you’ve agreed upon, before you start adding extras like overtime or one-off reimbursements for expenses. Nailing this figure is non-negotiable, as it’s the bedrock for calculating your employees' superannuation guarantee contributions.

Your Simple Guide to Ordinary Time Earnings

Let's think about an employee's total pay packet like a layered cake. The solid, predictable base layer is their Ordinary Time Earnings. This is their regular salary, plus any other payments that are directly tied to their standard hours, like performance bonuses or certain allowances.

The layers of icing and decorations on top are all the payments that don't count as OTE. This includes things like:

• Overtime pay for working beyond their standard hours.
• Lump-sum payouts when their employment ends.
• Reimbursements for specific work-related costs, like a one-off payment for a business trip.

When it comes to your super obligations, the Australian Taxation Office (ATO) is only interested in that base layer—the OTE. Getting this calculation right from the start is fundamental to running a compliant payroll.

To help you get a quick grasp of what’s in and what’s out, we’ve put together a simple table. It’s a handy cheat sheet for making sure you’re on the right track.

Ordinary Time Earnings At A Glance

This table gives you a great starting point, but always remember that the specifics can get tricky. The key is to ask: "Is this payment for the employee's ordinary hours of work?" If the answer is yes, it’s likely part of their OTE.

Why Does OTE Matter So Much?

The biggest reason OTE is critical for every Australian business is its direct link to the Superannuation Guarantee (SG). The law requires you to contribute a set percentage of an employee's OTE into their nominated super fund. If you get the OTE calculation wrong, you’ll inevitably pay the wrong amount of super, which can lead to hefty ATO penalties.

Key Takeaway: OTE isn't just another piece of payroll jargon; it's the legal foundation for calculating superannuation. A simple mistake in identifying what is and isn't OTE can snowball into non-compliance, financial penalties, and a mountain of administrative headaches.

Mastering OTE ensures your business stays on the right side of the law and that your team receives their full, correct entitlements. It's also a crucial part of accurate financial reporting, especially with systems like Single Touch Payroll (STP), which sends your payment data directly to the ATO. For more on this, you might find our guide on Single Touch Payroll reporting helpful. It will give you the foundational knowledge you need to manage your payroll with confidence.

What to Include and Exclude From OTE

Figuring out Ordinary Time Earnings (OTE) boils down to one critical task: knowing exactly which payments go into the calculation and which ones stay out. The line can feel blurry, but getting it wrong means incorrect superannuation payments—a costly mistake for any business.

Think of it like this: the Australian Taxation Office (ATO) separates payments into two groups. The first group covers all earnings tied to an employee's normal, standard working hours. This is the bedrock of their pay.

The second group is for payments that fall outside those ordinary hours or are for special, one-off purposes. These are almost always excluded from your OTE calculations.

Payments to Include in OTE

At its core, the rule is straightforward: if you’re paying an employee for their regular, rostered work, it’s probably OTE. This is the predictable and consistent portion of their earnings.

Nailing this down is one of the most important first steps when setting up payroll for small businesses, as it ensures your super guarantee obligations are met from day one.

Here’s a breakdown of what typically goes into the OTE calculation:

• Base Salary and Wages: This is the most straightforward component—it’s the regular pay an employee receives for their standard hours.
• Commissions: Payments based on sales or performance targets met during an employee’s normal working time.
• Shift Loadings: Extra pay for working shifts that fall within an employee's standard roster, like evening or weekend work.
• Certain Allowances: Allowances that are a regular and expected part of the job, such as a tool or qualification allowance, are generally included.
• Performance Bonuses: Bonuses that are directly linked to an employee’s work performance during their ordinary hours.
• Paid Leave: This covers any annual leave, sick leave, and long service leave taken while the person is still employed with you.

This decision tree helps map out the process for classifying a payment based on whether it relates to ‘ordinary hours’ or is considered ‘overtime’.

As you can see, the main test is always whether the payment is for an employee’s standard, agreed-upon hours of work.

Payments to Exclude From OTE

Knowing what not to include is just as important. Accidentally classifying these payments as OTE can lead you to overpay super, creating unnecessary costs and compliance headaches.

Ordinary Time Earnings form the backbone of superannuation calculations for Australian employers. According to the Australian Taxation Office (ATO), OTE includes payments for ordinary hours of work but explicitly excludes overtime and reimbursement-style payments. This definition stems from the Superannuation Guarantee (Administration) Act 1992, as detailed in the ATO's official guidance, which you can explore to better understand the list of payments that are ordinary time earnings.

With that in mind, here are the key payments to leave out of your OTE calculations:

• Overtime Payments: Any pay for hours worked beyond an employee’s standard, contracted hours is almost always excluded from OTE.
• Expense Reimbursements: Payments that simply refund an employee for a specific, work-related expense (like travel costs or client lunches) are not earnings, so they are not OTE.
• Termination Payments: Lump-sum payouts for unused annual leave or long service leave upon termination are specifically excluded.
• Certain Bonuses: Bonuses that are explicitly tied to hours worked that qualify as overtime are not considered OTE.

By clearly separating these payment types, you can be confident your super calculations are accurate, compliant, and fair to both your business and your team.

Calculating Superannuation From OTE Step By Step

So, you’ve sorted out what counts as Ordinary Time Earnings for your employees. The good news is that the hardest part is over. Calculating the actual superannuation guarantee (SG) contribution is surprisingly simple once you have that OTE figure.

The whole process boils down to one straightforward formula.

Employee's OTE for the period × Current Super Guarantee Rate = Superannuation Contribution

You need to run this calculation at least quarterly to make sure you’re paying into your employee's super fund by the ATO’s deadlines. Getting this right is a core part of the entire payroll cycle, so let’s walk through a couple of real-world examples to see how it works.

Example 1: Full-Time Salaried Employee

Let’s start with a simple case. Imagine you have a full-time marketing manager, Sarah, who is on a base salary of $90,000 per year. She’s paid monthly, so her OTE for the month is just her annual salary divided by 12.

1. Calculate Monthly OTE: $90,000 ÷ 12 = $7,500
2. Apply the SG Rate: The current SG rate is 11%.
3. Calculate Monthly Super: $7,500 × 0.11 = $825

For that month, you would need to contribute $825 to Sarah’s chosen super fund. It’s a clean, predictable calculation for employees with consistent pay.

Example 2: Part-Time Employee With a Bonus

Now for a more common scenario. Let's look at David, a part-time retail employee. His hours can change from week to week, but during one quarter, he earned $3,000 in regular wages. On top of that, he also received a $500 performance bonus for hitting sales targets during his ordinary hours.

Because the bonus is directly related to his ordinary work, it counts towards his OTE. His total OTE for the quarter includes both his wages and that bonus.

• Calculate Quarterly OTE: $3,000 (Wages) + $500 (Bonus) = $3,500
• Apply the SG Rate: $3,500 × 11% = $385

You would be required to pay $385 into David's super fund for that quarter. This shows just how important it is to reassess OTE every time you make variable payments like commissions or bonuses. You can learn more about your specific obligations in our detailed guide to the superannuation guarantee.

The Maximum Super Contribution Base

There’s one more critical rule to know: the maximum super contribution base. This is a cap set by the ATO each financial year. If an employee's quarterly OTE goes above this limit, you are only required to pay super on the amount up to the cap.

For the 2023–24 income year, this limit was set at $62,270 per quarter.

Let’s take a high-earning executive who has quarterly OTE of $70,000. You don't calculate super on the full $70,000. Instead, you only use the capped amount.

• Capped OTE: $62,270
• Super Contribution: $62,270 × 11% = $6,849.70

You have no legal obligation to pay super on the remaining $7,730 ($70,000 - $62,270) of their earnings for that quarter. This rule is in place to stop super obligations from becoming astronomical for the highest income earners. Remember to always check the ATO website for the current financial year's cap, as it changes annually.

How To Handle Bonuses And Allowances Correctly

When it comes to calculating Ordinary Time Earnings (OTE), bonuses and allowances are where most businesses get tripped up. The treatment of these payments for superannuation isn't always straightforward—it all comes down to why the employee is receiving the money.

Get this wrong, and you could be facing a superannuation shortfall and ATO penalties.

The simplest way to think about it is to ask: is this payment part of their expected salary package, or is it just paying them back for a specific work-related cost? A bonus for hitting regular sales targets is clearly part of their earnings. But a payment to cover the exact cost of a business flight is just a refund—not earnings.

Understanding this difference is the secret to classifying these payments correctly and keeping your super calculations accurate. Let’s look at the most common ones we see.

Decoding Bonuses: Performance vs Overtime

Bonuses are a classic source of confusion. The golden rule is to determine if the bonus is tied to work done during an employee's ordinary hours.

• Performance Bonuses (Included in OTE): A bonus paid to a salesperson for meeting their monthly targets is directly connected to their regular work. This is OTE, and you must pay super on it.

• Overtime-Related Bonuses (Excluded from OTE): If you give an employee a bonus specifically for working hours outside their normal contract—like a bonus for working a public holiday that isn't part of their usual roster—this payment is not part of their OTE.

The Australian Taxation Office (ATO) is crystal clear on this point. If a bonus is an incentive for performance within standard work hours, it’s OTE. If it’s a reward for working extra hours, it generally isn't.

For more detail on the tax side of things, you might also want to read our guide on how to handle the tax on bonus payments.

Allowances: Salary Package vs Reimbursement

Allowances are another grey area that trips people up. Again, it all depends on whether the payment is an expected part of the employee's regular pay or a direct repayment for an expense they incurred for work.

1. Allowances Included in OTE

These are fixed payments an employee receives as part of their salary package. They get the money whether they spend it on a specific item or not, so it’s treated as part of their earnings.

• Tool Allowance: A tradesperson gets a $50 per week tool allowance. This is OTE because it's a guaranteed part of their pay, not a refund for a specific tool they bought.
• Qualification Allowance: An accountant is paid an extra $2,000 per year for holding a professional certification. This is OTE.

2. Allowances Excluded from OTE

These payments are made to cover a precise, verifiable, work-related expense. The employee isn't meant to make a profit; you're just making them whole.

• Travel Reimbursement: An employee hands you receipts for a $150 train ticket and a $45 client lunch. The $195 you pay them is a direct reimbursement, so it’s not OTE.
• Car Allowance (per kilometre): Paying an employee a set rate per kilometre for using their personal car on business trips is a reimbursement. It is excluded from OTE.

Right, let's get one thing straight. You spend a lot of time calculating the Ordinary Time Earnings (OTE) for each of your employees. But there’s another figure you need to have on your radar: Average Weekly Ordinary Time Earnings (AWOTE).

You don't calculate this one yourself. AWOTE is a major economic benchmark, released twice a year by the Australian Bureau of Statistics (ABS). It's the national average of what full-time adults are earning for their standard hours across the country.

Think of it like this: your employee's OTE is a single tree. AWOTE is the health of the entire forest. It gives you a bird's-eye view of wage trends in Australia, which is a massive advantage for business planning and making sure your pay rates are competitive.

This statistic is far more than just a number for economists to debate. It directly influences legislative thresholds, including the maximum super contribution base, and signals important shifts in the labour market. Paying attention to AWOTE helps you make smarter, more strategic financial decisions for your business.

How Businesses Can Use AWOTE Data

Keeping an eye on AWOTE trends is a smart move for staying competitive and planning for the future. Here’s how you can use the data:

• Benchmark Your Salaries: How do your pay rates stack up? Comparing your salaries to the national average helps you know if you’re offering enough to attract and keep top talent.
• Forecast Wage Growth: When AWOTE is on the rise, it’s a clear signal that wage pressures are building. This gives you a heads-up to budget for salary increases in your financial forecasts before they become a problem.
• Inform Financial Decisions: AWOTE is used to index various government payments and thresholds. Knowing its movements helps you anticipate changes that could impact your super obligations and other costs.

For example, the ABS reported that full-time adult AWOTE jumped by 3.8% in the year leading up to November 2023. The ACT led the charge with the highest figure at $2,171. Watching these trends shows you exactly how the wage landscape is shifting across Australia.

While you won't use AWOTE for your day-to-day payroll runs, it’s a vital strategic tool. You can dive deeper into the ABS's own guide to understand employee earnings and hours statistics to get the full picture. For any forward-thinking business owner, this isn't just data—it's intelligence.

Common OTE Mistakes And How To Fix Them

Getting Ordinary Time Earnings wrong is surprisingly easy, and even small slip-ups can snowball into a major headache with the Australian Taxation Office (ATO). We’ve seen it happen time and again—simple miscalculations leading to hefty penalties and stressful audits.

Think of this as your payroll pre-flight check. We're going to walk through the most common traps businesses fall into and, more importantly, give you a clear, practical plan to fix them before they become a problem.

Most errors come down to one thing: misclassifying payments like allowances, bonuses, and commissions. Get these wrong, and you’re almost guaranteed to be underpaying your superannuation guarantee—a serious compliance breach the ATO does not take lightly.

Misclassifying Allowances

One of the most frequent mistakes we see is businesses treating all allowances as simple reimbursements, and therefore excluding them from OTE. This is a critical misunderstanding that can quickly create a super shortfall.

• The Mistake: A business pays a weekly $50 tool allowance but doesn't include it in OTE calculations, assuming all allowances are exempt.
• The Fix: You must look at the purpose of the allowance. If it’s a fixed, predictable payment that’s an expected part of the employee's salary—like a tool or qualification allowance—it must be included in OTE. Only direct reimbursements for a specific, receipted work expense can be excluded.

Forgetting About Commissions And Bonuses

Another classic pitfall is leaving commissions and performance bonuses out of the super calculation. These payments are almost always tied to an employee's work during their ordinary hours, making them part of their OTE.

Key Insight: The ATO’s position is straightforward. If a bonus or commission is paid to reward an employee for their performance during their standard working hours, it's considered OTE. Super is payable on it.

• The Mistake: A salesperson earns a $2,000 bonus for hitting their quarterly targets, but the employer only calculates super on their base salary.
• The Fix: Always include performance-related bonuses and commissions in your OTE calculations for the pay period in which they are paid. The best defence here is to review your payroll system settings. Make sure these payment types are automatically flagged to have super calculated on them, removing the risk of manual error.

Your OTE Questions Answered

When it comes to Ordinary Time Earnings, the devil is always in the detail. We get a lot of questions from business owners trying to get it right, so we’ve put together straight answers to the most common queries we see.

Is Annual Leave Paid Out on Termination Part of OTE?

No, it isn't. Any unused annual leave, long service leave, or sick leave that you pay out as a lump sum when an employee leaves is not considered part of Ordinary Time Earnings.

This means you are not required to pay the Superannuation Guarantee (SG) on these specific termination payments. It’s a clean break.

What Happens If I Underpay Super Because of an OTE Mistake?

Mistakes happen, but the ATO takes super shortfalls very seriously. If you’ve underpaid, you must lodge a Superannuation Guarantee Charge (SGC) statement with the ATO and pay what’s owed.

This isn’t just the super you missed. The SGC is made up of the super shortfall, interest on that amount, and a $20 administration fee per employee, for every quarter you got it wrong.

It's critical to fix this immediately. Unlike your regular super contributions, the SGC is not tax-deductible, making it a much more expensive mistake. Getting a tax professional involved can help you manage the process and minimise the financial hit.

Do I Have to Pay Super to Contractors?

This is a classic payroll grey area, and the answer is a firm: it depends. If your contract with someone is principally for their personal labour and skills, the ATO will likely see them as an 'employee' for super purposes, and you’ll need to pay it.

However, if they are a genuine independent contractor running their own business—meaning they can delegate the work, take on financial risk, and use their own tools—then super is generally not required. The ATO has a "contractor decision tool," but for any complex arrangements, getting professional advice is the only way to be certain you've classified them correctly and avoid a costly surprise down the track.

Getting OTE and super right can be a minefield. The team at Australia Wide Tax Solutions specialises in helping small and medium-sized businesses manage their tax and accounting obligations with confidence. Contact us today to ensure your payroll is compliant and optimised. Find out more at https://www.awts.net.au.