Federal Court of Australia

Department of Education v Commissioner of Taxation [2026] FCA 898

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to submit proposed orders giving effect to the Court’s reasons and addressing costs by 4:00pm on 17 July 2026.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BUTTON J:

1    This matter concerns whether amended assessments issued by the Respondent (the Commissioner) to the Applicant (the Department) for superannuation guarantee charges were excessive. That depends on whether or not the Department was liable to such charges between 1 April 2004 and 31 December 2022, pursuant to the terms of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SGA Act). In broad terms, the SGA Act renders employers liable to pay superannuation guarantee charges if they have not made superannuation guarantee payments in full, calculated on the employees’ “notional earnings base” (for periods before 1 July 2008) and the employees’ “ordinary time earnings” (for periods from 1 July 2008).

2    In the Department’s case, its liability to the superannuation guarantee charge depends on whether or not “salary loading allowance” payments made by the Department to employed teachers were, or were not, to be included in the teachers’ “notional earnings base” (for periods before 1 July 2008) and their “ordinary time earnings” (for periods from 1 July 2008). As explained below, before 1 July 2008, the answer to that question, in the Department’s case, depended on State-level legislation. From 1 July 2008, changes made to the SGA Act meant that calculations by reference to “ordinary time earnings” were standardised and pre-21 August 1991 superannuation entitlements were no longer used in determining liability for the superannuation guarantee charge. Those changes were implemented through the Superannuation Laws Amendment (2004 Measures No 2) Act 2004 (Cth) (the 2004 Act), which came into effect on 1 July 2008. From that point, the question in respect of the Department is whether payments of salary loading allowance were part of the employees’ “ordinary time earnings” (referred to by the parties as OTE).

3    The Commissioner issued amended assessments to the Department for superannuation guarantee charges in respect of each quarter over the relevant period. The Department lodged objections to those amended assessments, but those objections were disallowed by the Commissioner. The Department then initiated this proceeding, which is an appeal against the objection decision of the Commissioner disallowing the Department’s objections.

4    The amended assessments, objections to which were disallowed, related to 18 employees who had raised queries with the Commissioner. In this respect, the outcome of this proceeding can be expected to have wider ramifications in relation to the many thousands of teachers employed by the Department during the period in issue.

5    The Department relied on two affidavits of Tony Bugden, the Executive Director of People and Workplace Relations (Schools) at the Department. Mr Bugden has been employed by the Department since January 1986. He was not cross-examined. The parties jointly submitted and relied on an Amended Statement of Agreed Facts. The preparation and provision of this document was of substantial assistance in narrowing the issues in dispute and in allowing argument to proceed efficiently.

The legislative scheme

6    Where an employer has paid sufficient superannuation guarantee amounts, calculated (depending on the period) by reference to their employee’s “notional earnings base” or the employee’s “ordinary time earnings”, the employer will not be liable to pay the superannuation guarantee charge under the SGA Act (see SGA Act ss 19 and 23(2)). The superannuation guarantee charge is an amount that exceeds the amount of the superannuation guarantee amounts whose payment would see the employer avoid liability to pay the superannuation guarantee charge. The superannuation guarantee charge is a higher amount because it is calculated by reference to the employee’s total salary or wages in a quarter (including overtime) and also includes interest and an administration fee. In this way, the legislative scheme operates so as to incentivise employers to pay superannuation guarantee amounts: Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation (2011) 244 CLR 97; [2011] HCA 35 at [3] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); see also BlueScope Steel (AIS) Pty Ltd v Australian Workers Union (2019) 270 FCR 359; [2019] FCAFC 84 (BlueScope) at [25]ff (Allsop CJ, Rangiah J agreeing), [215]–[216] (Collier J).

7    The legislative scheme is somewhat complex because it operates by effectively relieving employers from liability for superannuation guarantee charges where they have paid superannuation guarantee contributions to their employees’ superannuation accounts. It does this by means of determining whether the application of the formula in s 23(2) results in a percentage figure that is equal to or greater than the charge percentage stated in the table in s 19(2). But it is not necessary to dwell on that complexity because the critical question is agreed by the parties to be whether the salary loading allowance is included in “ordinary time earnings” (which is an input into the formula in s 23(2)) for periods from 1 July 2008. For periods before 1 July 2008, the critical question is agreed to be whether salary loading allowance is to be included in the “notional earnings base” (which was an input in the formula in s 23(2) as it stood prior to the amendments made by the 2004 Act).

8    The basic difference between the legislative scheme prior to, and following, the amendments made by the 2004 Act coming into effect is as follows. At the risk of oversimplifying, when the (effectively) compulsory superannuation system was introduced in 1992, it operated by reference to employers’ existing obligations in relation to superannuation, where instruments imposing such obligations existed prior to 21 August 1991. Where such arrangements were in place, they constituted the earnings base by reference to which the SGA Act operated, and the expression “ordinary time earnings” was only used where a pre-21 August 1991 earnings base was not in existence. This meant that there was no standardised earnings base, and the superannuation contributions made in respect of employees could differ, depending on those various arrangements.

9    The amendments made by the 2004 Act removed this variability by using a single earnings base for all employees, namely “ordinary time earnings”, so that pre-21 August 1991 instruments were no longer used. These matters are referred to in the Explanatory Memorandum to the Superannuation Laws Amendment (2004 Measures No 2) Bill 2004 (Cth) at [4.2]–[4.6] and [4.10]. See also BlueScope at [47]ff (Allsop CJ).

Pre-1 July 2008: notional earnings base and “salary”

10    It was common ground that, prior to the amendments made by the 2004 Act coming into effect:

(a)    s 13(1) of the SGA Act applied and that, by s 13(2), the “notional earnings base” meant the “reference earnings” as defined by s 13(5);

(b)    s 13(5)(a) supplied the applicable definition of “reference earnings” by reference (relevantly here) to the applicable “industrial award, or a law of the Commonwealth, a State or a Territory”, which was (in this case) either or both of the State Employees Retirement Benefits Act 1979 (Vic) (the 1979 Act) and the State Superannuation Act 1988 (Vic) (the 1988 Act);

(c)    each of the 1979 Act and the 1988 Act required superannuation to be paid according to the defined term “salary”;

(d)    the term “salary” was defined in the 1979 Act (s 2(1)) as follows (underlined emphasis added):

salary means the annual rate, computed as determined by the Board on the basis of a year, of pecuniary emoluments payable periodically and regularly to an employee for the performance of the duties of his grade of employment as such employee but does not include a recreation leave allowance or an expense allowance or payments for overtime or in the form of bonuses, or for travelling allowances or for incidental expenses or payments of a temporary character;

(e)    the term “salary” was defined in the 1988 Act (s 3(1)) as follows (underlined emphasis added):

salary means the annual rate, computed as determined by the Board on the basis of a year consisting of 313 working days and 52 Sundays, of pecuniary emoluments payable periodically and regularly to an officer for the performance of the duties of his or her grade of employment as an officer, and includes—

(a)    the annual rate of allowances payable instead of free quarters, and, when free quarters are provided, the annual rate of allowance that would have been payable had free quarters not been provided; and

(b)    the annual rate of remuneration or pecuniary emolument payable for the regular performance of duties on Sundays, subject to deduction of the value of any leave of absence granted in respect thereof, where the annual value of that remuneration and of that deduction can be computed in advance; and

*        *        *        *        *

(d)    unless an officer otherwise elects in writing, the annual rate of any higher duties allowance payable to an officer for at least 12 months and includes any increase in the rate during a period of at least 12 months where a higher duties allowance has been paid continuously in respect of different positions held by that officer; and

(e)    any additional amount prescribed for officers who perform rostered or shift work; and

(f)    the annual rate of any other remuneration or pecuniary emolument payable periodically and approved by the Board—

but does not include a recreation leave allowance or an expense allowance or payment for overtime, or for travelling allowances or for incidental expenses or payments of a temporary character;

11    The primary basis upon which the Department contended that the salary loading allowance was not “salary” — and was therefore not part of the notional earnings base — was because it was effectively an annual leave loading, and therefore excluded as a “recreation leave allowance”. The Department also submitted, albeit tepidly, that the salary loading allowance was not “salary” on the basis that it was a payment of a “temporary character”.

12    The term “recreation leave allowance” was not defined in either the 1979 Act or the 1988 Act.

From 1 July 2008: OTE

13    Section 6(1) of the SGA Act defines OTE, in relation to an employee, as follows (underlined emphasis added):

ordinary time earnings, in relation to an employee, means:

(a)     the total of:

(i)     earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:

(A)     a payment in lieu of unused sick leave;

(B)     an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997; and

(ii)    earnings consisting of over-award payments, shift-loading or commission; or

(b)     if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter—the maximum contribution base.

14    It was common ground that none of the exclusions in s 6(1)(a)(i)(A) or (B) applied, and that s 6(1)(b) is irrelevant. It was also common ground that salary loading allowance is not an amount of a kind referred to in s 6(1)(a)(ii).

15    As mentioned above, s 19 of the SGA Act refers to “total salary or wages”. The use of this different expression in s 19 was the subject of submissions by the Department, emphasising that OTE is narrower than the broader concept of “total salary or wages”, which is used in s 19 in a way that results in employers who do not pay superannuation guarantee amounts in full facing liability for superannuation guarantee charges that are calculated using this broader base.

The operative entitlement to salary loading allowance, overtime and recreation or annual leave

Period prior to 1 July 2008

16    The parties agreed that, for the period before 1 July 2008, Ministerial Order No. 186 (2004) — entitled the Teaching Class (Employment Conditions, Salaries, Allowances and Selection) Order 2004 — made under the Teaching Service Act 1981 (Vic) (Order 186), governed the grant of the salary loading allowance.

17    Under Order 186:

(1)    Teachers were paid salaries specified in Sch 1 (unless any salary specified by the Australian Industrial Relations Commission was greater): cl 2.1.1(2). Clause 1.1 of Sch 1 set out salary ranges for various teacher classifications (beginning teacher, experienced teacher, experienced teacher with responsibility, and leading teacher) and bands within those classifications. Clause 1.2 of Sch 1 similarly set out salaries but according to a varied series of classifications, from 8 August 2004.

(2)    Salary loading allowance was paid pursuant to cl 2.1.10, relevantly as follows (underlined emphasis added):

(1)     Subject to sub-clause (3), a teacher employed on 30 June of any year who has at that date completed one year of paid service commencing on 1 July of the preceding year, shall be entitled to receive an annual salary loading allowance equivalent to 17.5 per cent of four weeks of the total salary to which he or she is normally entitled at that date, or a maximum amount equivalent to 17.5 per cent of four weeks of the salary at sub division E-3a as specified in clause 1.2 of schedule 1 at that date, whichever is the lesser.

(2)     No payment shall be made in respect of service prior to resignation except in the case where a teacher resigns only for the purpose of changing his or her conditions of employment without a break in the continuity of service.

(3)     (a)     The allowance specified in sub-clause (1) shall be made on a     pro rata basis to a teacher:

(i)     who dies or retires on account of age or ill-health; or

(ii)     who has completed a minimum of ninety days’ paid service but less than a completed year of paid service within the twelve months preceding 30 June. …

(3)    Under the heading “Attendance and Hours of Duty”, cl 4.1.1 provided that “the ordinary hours of duty of teachers shall be 76 hours per fortnight”.

Period from 1 July 2008

18    The parties agreed that, for the period following 1 July 2008, the instruments under which the entitlement to salary loading allowance arose were in substantively the same terms. They further agreed that the terms of the Victorian Government Schools Agreement 2022 (the 2022 Agreement) could be used as an example and there is no need to consider or refer to the various other agreements, awards and instruments operating between 1 July 2008 and 31 December 2022.

19    Under the 2022 Agreement:

(1)    The “teacher class” was to be paid “the salaries specified in Schedule 1”: cl 16(2). Schedule 1 set out the salaries to be paid by reference to the range classification of each employee with the broader categories of “classroom teacher”, “learning specialist” and “leading teacher”.

(2)    Salary loading allowance was paid pursuant to cl 20(5), which relevantly provided as follows (underlined emphasis added):

Salary loading allowance

(5) (a)    Subject to subclause (c), an employee is entitled to be paid, on a date determined by the Employer, a salary loading allowance each year of an amount equivalent to either 17.5 per cent of four weeks of the total salary to which the employee is normally entitled as at 1 December of the year in which the allowance is paid or $1,402 in 2022, $1,430 in 2023, $1,459 in 2024 and $1,488 in 2025 whichever is the lesser.

(b)     Employees with part time service during the relevant year will be paid a pro-rata salary loading allowance based on the aggregate of the employee’s paid service over the twelve months preceding the date determined under subclause (a).

(c)     An employee with less than a complete year of service will be paid a pro rata salary loading allowance based on the aggregate of the employee’s service over the twelve months preceding the date determined under subclause (a).

(d)     No payment will be made to an employee, other than an education support class employee, in respect of service prior to cessation of employment where that cessation occurs prior to the payment of the salary loading except where an employee dies or retires on account of age or ill-health. …

(3)    Under the heading “Attendance”, cl 24(1)(a) provided that “[o]rdinary hours of work for full-time employees are 76 hours a fortnight”.

(4)    Clause 24(8) made provision for teachers to receive time-in-lieu, which applied in various circumstances, including for work in excess of 38 hours in a particular week. There was no provision for “overtime” payments.

Overtime

20    Although not referred to by the parties, cl 2.1.11 of Order 186 provided for teachers to be entitled to overtime payments in accordance with the rates specified in cl 1.3 of Sch 1 as follows:

2.1.11    If approved by the Secretary, teachers shall be entitled to payment on an hourly, two-hourly or sessional basis, as the case may be, in accordance with the rates specified in clause 1.3 of schedule 1, for:

(a)     teaching duties carried out as overtime;

(b)     continuation classes in English for adult migrants;

(c)     lecture or tutorial duties at approved courses conducted outside normal hours of duty;

(d)     part-time instruction in special classes; or

(e)     hobby, recreation and general interest classes.

21    Clause 1.3 of Sch 1 set out dollar figure amounts to be paid (per hour, or per two hour session) for teachers undertaking overtime, which varied according to the task being undertaken by the teacher (teaching “Group A subjects (up to and including Victorian Certificate of Education level)”, teaching “Group B subjects (Tertiary level)”, teaching “Continuation classes in English for adult migrants”, “Teachers employed to conduct approved courses. Lecture or tutorial duties”, and “Teachers employed to conduct hobby, recreational or general interest classes”).

22    Mr Bugden’s evidence about “overtime” and night schools was as follows (emphasis in original):

Night school - overtime

25.     I recall that at the time that the recreation leave loading was introduced in the 1970s, there was no concept of overtime or time in lieu for the teaching service, at least as we know it today. Instead, there was provision to pay teachers additional amounts where they taught or worked in ‘night schools’ during the school term. Night schools were used to teach students the High School Certificate curriculum, as well as other subjects. The amounts paid to the teachers for night school were based on a specified sum per hour taught. As the teaching was performed outside of usual school hours, such payments were known within the teaching profession as “overtime”. These payments were not available to teachers during the school holiday period, as there were no night school classes conducted during that period. As far as I am aware, this was the only paid overtime available to teachers at the time.

26.     These historic provisions for overtime rates of pay for teaching night school continue to exist; for example in the Teaching Service (Employment Conditions, Salaries, Allowances, Selection and Conduct) Ministerial Order No. 1388 (Ministerial Order 1388), dated 11 October 2022 (clause 2.7.2 and Schedule 1 clause 1.2). However night schools began to fall out of use in the 1980s and night schools are not run in the present day. Therefore, whilst these rates of pay are in existence within the system, they are effectively unused as no one teaches at night schools anymore.

Annexed and marked TB-3 is an extract of clause 2.7.2 and Schedule 1 Clause 1.2. of Ministerial Order 1388.

23    As may be seen, Mr Bugden’s evidence by its terms does not actually purport to establish any link between the introduction of salary loading allowance and opportunities to earn overtime not being available during school holidays. Rather, his evidence explains that only very limited opportunities were available to teachers to earn amounts in addition to their regular salaries, making the point that “overtime”, as it is generally understood, was not a feature of the teaching profession at the time salary loading allowance was introduced, or subsequently.

Recreation or annual leave

24    Both Order 186 and the 2022 Agreement made provision for annual or recreation leave for teachers.

25    The parties did not refer to cl 6.1.1(1)–(2) of Order 186, which provided for teachers to be entitled to 20 days “recreation leave” in respect of each calendar year of service, to be taken “at such times as the Secretary determines”.

26    Clause 26(1) of the 2022 Agreement provided for employees to have 20 days’ annual leave, to be taken “at such times as the Employer determines”.

27    Counsel for the Department referred in oral submissions to a practice whereby teachers’ entitlement to annual leave is taken to have been “acquitted” during school holiday periods without teachers formally taking any particular period as annual leave. This was supported by the evidence of Mr Bugden.

28    Mr Bugden’s evidence about annual leave acquittal was as follows:

22.    Prior to 2022 the Department did not record the accrual of annual leave or the taking (acquittal) of annual leave by teaching staff. This was due to a long standing assumption and practice that, as teachers were permitted to be absent for at least 10 weeks in a year (inclusive of school holidays), there would in all cases be a period of 4 weeks where a teacher’s entitlement to annual leave would be acquitted. On that basis, the Department was satisfied that each employee had at least 4 weeks’ leave per year.

23.     This practice of not recording annual leave was abandoned as part of the negotiations leading to the Victorian Government Schools Agreement 2022 (2022 Agreement). Therefore, since 1 February 2023, there has been a formal record (within the eduPay system) of the accrual of annual leave, and its acquittal, by each teacher.

24.     It has therefore only been since 2023 that legal instruments applicable to the Department made it clear that staff in the teacher class had an entitlement to annual leave that was formally accrued. This change was brought in as the industrial environment at the time made it increasingly difficult to manage annual leave for teachers without having a formal system, and record, of accrual and acquittal of annual leave. The change meant that, should a review or analysis of teachers’ annual leave entitlements be required, for example by the Fair Work Ombudsman, the annual leave accrual of teachers could be readily and easily determined as it would be recorded on everyone’s payslip.

Historical development of salary loading allowance

29    The Department adduced evidence regarding the historical origins of the salary loading allowance. That evidence discloses the following about the initial institution of salary loading allowance, its removal by Kennett-government legislation in 1992–1993, and its subsequent reinstatement from 1995.

30    By a letter dated 15 May 1974, the Victorian Institute of Inspectors of Schools wrote to the Teachers Tribunal and applied for the Teaching Service—Professional (Classification, Salaries and Allowances) Regulation to be amended to provide for a “Recreation Leave Allowance”. The request was made on the basis that, as an amendment had been made to the Public Service Board Regulations providing for a recreation leave allowance to be payable for “the period of recreation leave taken”, teachers, who “have the same recreation leave entitlement, i.e., four weeks per annum” as those public officers, should have the same allowance as was enjoyed by members of the public service.

31    The allowance specified for those public service officers was expressed as “an allowance at the rate of 17½ per cent. of the salary of the officer for the period of recreation leave taken, subject to salary for the purposes of calculating this allowance being deemed to be the salary of the officer as at the first January of the year in which recreation leave is taken”.

32    Whether or not the introduction of leave loading for other groups of employees is to be explained on the basis of a lack of opportunity to earn overtime while on annual leave, and cushioning them against additional expenses while on leave — as to which the Department referred to the decision of Judge Driver in Finance Sector Union of Australia v Commonwealth Bank of Australia [2022] FedCFamC2G 409 — salary loading allowance was introduced for teachers on the basis that they should have the same allowance as other public servants. The case was not made on the basis of lost overtime (as to which see further paragraph 22 above).

33    A record of the Teachers Tribunal’s decision recorded the individual minutes that had been adopted by the General Tribunal and Primary Tribunal on 20 January 1975, and by the Secondary Tribunal and Technical Tribunal on 27 February 1975, each of which “[a]greed in principle that recreation leave loading at the rate of 17½% shall be paid, based on service commencing 1.1.[19]74” and were headed “Recreation Leave Loading (17½%)”.

34    By a letter dated 4 August 1975, the Chairman of the Public Service Board of Western Australia wrote to the Chairman of the Public Service Board in Victoria. The letter noted that the Western Australian Government had agreed in principle to pay teachers in that state an annual leave loading and requested details of certain aspects of conditions applicable to Victorian teachers. The first question posed was (emphasis in original):

1.    On what principles have the decisions been made to grant such a loading to teachers? Has it been accepted that the school vacation periods are in fact annual leave holidays for teachers with the loading being applied to only four weeks or has no such assumption been made and the matter has only been considered on a payment basis equivalent to the entitlement enjoyed by Public Servants?

35    The enquiry was referred to the Secretary of the Teachers Tribunal. In an initial response, dated 19 August 1975, the Secretary advised that, although the Tribunal had “agreed in principle to 17½% annual leave loading for teachers”, the conditions of the scheme had not yet been finalised. A subsequent response, dated 1 September 1975, stated, in answer to the first question, that:

1.    In the case of professional officers the loading has been related to their four weeks annual recreation leave. In the case of teachers, no assumption has been made in relation to annual leave and the loading has simply been based on 17½% of four weeks of normal fortnightly total emolument.

36    The Victorian Government Gazette for 3 September 1975 set out amendments to be made to the Teaching Service—Professional (Classification, Salaries, and Allowances) Regulation by inserting the following clause:

5A.     Salary Loading Allowance.

(a)     A professional officer, in respect of recreation leave taken after the 1st January, 1976, shall be entitled to an allowance at the rate of 17 ½ per cent. of his salary for the period of recreation leave taken, not exceeding $200 in respect of leave for any calendar year.

(b)     Salary for the purpose of calculating this allowance shall be deemed to be the subdivisional salary of the professional officer as at the 1st January of the year in which the recreation leave is taken or, where he commences employment after the 1st January in that year, the 1st January equivalent of the subdivisional salary payable to him at the date of the commencement of his employment.

…

37    Amendments to the Teaching Service—Primary Schools Division (Classification, Salaries, and Allowances) Regulation and the Teaching Service—Secondary Schools Division (Classification, Salaries, and Allowances) Regulation were also gazetted (along with a similar regulation for the Technical Schools division). The amendments each introduced a new cl 10A, which was in the same terms and provided as follows (in relevant part) (emphasis added):

10A.     Salary Loading Allowance.

(a)     A member other than a student in training who is employed on the final day of the last complete pay period in June of any year and who has at that date completed one year of full-time service for which salary has been received shall be entitled to receive an annual salary loading allowance equivalent to 17½ per cent. of four weeks of the normal fortnightly total emolument to which he is entitled at that date or $200, whichever is the lesser.

Provided that no payment shall be made in respect of service prior to resignation. …

38    Based on the historical record referred to above, the evidence shows that the salary loading allowance was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts.

39    The evidence also supports the contention, advanced by the Department, that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to four weeks’ annual leave not being taken over an identified period within the school holidays. This is particularly exposed by the different structure adopted in the amendments set out in the 3 September 1975 Gazette, for the regulation applicable to the “Professional” division — pursuant to which employees were paid the loading when they actually took recreation leave (the cl 5A arrangement) — as compared with the “Teaching” divisions (ie, Primary, Secondary and Technical Schools), where teaching staff were paid the salary loading allowance amount based on being employed as at a particular date in June in a manner that was not linked to actually taking recreation leave (the cl 10A arrangement).

40    Although the Department, in its submissions, relied on cl 5A, in my view the correct clause to refer to, and the one to which Mr Bugden referred in his evidence in relation to teachers, is cl 10A. It may be that the confusion evident in the Department’s submissions stemmed from the reference, in the initial request made in 1974 (referred to at paragraph 30 above), to the “Professional” regulation.

41    I also conclude that the salary loading allowance was not linked to the provision of compensation for any lost opportunity to earn overtime during holiday periods. The documentary evidence does not support any conclusion that the salary loading allowance was introduced to compensate teachers for any lost opportunity to earn overtime, whether through teaching at night schools or otherwise.

42    Provisions of determinations and contracts imposing an obligation on employers to pay loading to employees for a period “during which the employee is absent on annual leave” were rendered of no force or effect by s 5 of the Annual Leave Payments Act 1992 (Vic). That Act was Kennett government-era legislation and sought to nullify annual leave loadings. Section 5 was amended by the Annual Leave Payments (Amendment) Act 1993 (Vic) to include express reference to salary loading allowance paid to teachers “solely in respect of the completion by that member or person of a period of service”. The evident and stated purpose of this amendment was to capture salary loading allowance; s 1 of that Act stated: “The purpose of this Act is to amend the Annual Leave Payments Act 1992 to ensure that it applies to the annual salary loading allowance of members of the teaching service and persons employed in the technical and further education teaching service.”

43    Following this legislation, unions, including the Community and Public Sector Union and the Australian Education Union, made a federal industrial claim seeking reinstatement of these allowances. That claim was successful. The Australian Industrial Relations Commission’s reasons for decision dated 19 January 1995 in respect of the application made by the Australian Education Union to vary the Teachers (Victorian Government Schools — Interim) Award 1994 referred to the Victorian legislation and stated (emphasis added):

“Salary loading allowance” is very similar to what is commonly called “annual leave loading”, a condition of employment found in many awards of this Commission and of State industrial relations tribunals. The similarity between salary loading allowance and annual leave loading appears clearly from the terms of the application which we set out later. As explained to us, the term “salary loading allowance” is used because of the difficulty in identifying, in the case of school teachers, the specific four weeks annual leave for which the allowance is payable. There is no dispute that we should treat the salary loading allowance as if it were identical to annual leave loading.

44    The Commission explained its decision to accede to the union’s application as follows (emphasis added):

In our decision in this matter of 23 December 1994 (Print L8053) we decided to grant the AEU’s application subject to the award variation operating from 31 December 1994. Our basic reason for upholding the AEU’s claim is that, in our view, annual leave loading is a standard condition of employment for employees covered by awards of this Commission.

So far as teachers and related employees are concerned there is, as we understand it, no dispute that:

(a)     government school teachers in the other Australian states, and in the Territories, are generally entitled to an annual leave loading;

(b)     non-government school teachers in Australia are generally entitled to an annual leave loading;

(c)     non-teaching staff in Victorian government schools (teaching aides) are entitled to an annual leave loading; and

(d)     immediately prior to the coming into effect of the Victorian 1993 Act, Victorian government school teachers were entitled to a salary loading.

In his submissions, Dr Jessup took us in detail through the history of annual leave loading in decisions of this Commission, of State industrial relations tribunals and by governmental determinations. He submitted that there has been no Full Bench decision in the nature of a test case which justifies the granting of the present application. We accept this submission. It is, however, the situation that annual leave loading is contained in many awards of this Commission. Whether or not it should be is not, in our view, a matter for us in the present case which is not a test case. It is a case involving a claim related to one award, argued by the two unions and the one employer involved.

45    I accept the Department’s submission that this decision treated salary loading allowance as effectively the same as annual leave allowance, noting that the Commission referred to the explanation given to it as to why the term “salary loading allowance” was used for teachers.

Relevant case law

46    The expression “ordinary time earnings” in the SGA Act was considered closely by Allsop CJ in BlueScope. Having referred to the need to construe legislation by reference to the text, context, purpose and history of that legislation (Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [69]–[71] (McHugh, Gummow, Kirby and Hayne JJ)), the following are the points of particular relevance that may be drawn from his Honour’s analysis in BlueScope (at [34]–[57] and [121]):

(1)    It is the “earnings” that are the focus of the phrase being defined — “ordinary time earnings” — and the definition — “earnings in respect of ordinary hours of work”.

(2)    Those earnings are identified by reference to an objective standard; there is no factual enquiry into the hours ordinarily or usually worked by any individual employee.

(3)    The language “ordinary time earnings” is to be contrasted with the language of “total salary or wages”, which is used in ss 11(1)(ba) and 12(3) of the SGA Act. The latter expression is “an all-encompassing expression concerned with hours actually worked” and likely a higher sum than “earnings in respect of ordinary hours of work”.

(4)    The context of the legislation reveals that the provision is not directed to compensating individuals for their labour; rather it is part of a regime directed to encouraging and facilitating national savings, using the taxation power. The legislation is not intended to provide superannuation benefits on total salary.

(5)    The phrase “ordinary hours” can, in some contexts, refer to regular, normal, customary or usual hours, but in other contexts refers to the hours of work referred to in applicable industrial instruments as standard hours to be paid at ordinary rates, as opposed to additional hours (even if usual or customary) paid at a special or higher rate, which is reflected in the well-recognised distinction between ordinary hours of work and overtime.

(6)    Following reductions in the standard working week — from 48 hours before the 1920s, to 38 hours in 1983 — the 38-hour week has had a long-standing place in Australia’s industrial relations and wages system. The historical and contemporaneous importance of the phrase “ordinary hours of work” assists in understanding the use of the phrase in the SGA Act when it was enacted in 1992, and its continued utilisation.

(7)    The purpose of the SGA Act was to secure for workers a minimum level of superannuation and to do so through an efficient mechanism based on self-assessment. The simplicity and efficiency of administration would be threatened if it were necessary for employers to engage in a factual assessment, for each employee, of the person’s customary or usual working hours and rates. Rather, the statutory purpose of simplicity and efficiency supports an interpretation that looks to the relevant industrial instrument for standard hours at ordinary rates of pay.

(8)    The meaning that best reflects the language, context (including the historical and industrial context) and purpose (including simplicity and efficiency) is “earnings in respect of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment” where such exists: BlueScope at [56]. This meaning adopts as central the distinction between earnings for ordinary time and earnings for additional or greater hours beyond ordinary or standard hours.

47    These observations are to be understood having regard to the context constituted by the case before the Full Court in BlueScope. That case concerned two salary systems operated by the employer: the “annualised” salary system, and the “aggregate” salary system. Employees working under the annualised salary system worked up to 43.5 hours per week, being 38 hours and 5.5 “additional hours”. Those employees may or may not have been called on to actually work those additional hours, depending on the needs of the business. The relevant agreement made provision for a “base salary”, being the ordinary rate for 38 hours, and a higher rate for the 5.5 additional hours.

48    Those engaged under the annualised salary system, as well as those engaged under the aggregate salary system, were rostered to work on public holidays. The question was whether the payment for “additional hours” included in the annualised salary were OTE, and whether the public holiday payments included in both salary systems were OTE.

49    The Full Court concluded that the “additional hours” component was not OTE: at [114]–[119] (Allsop CJ, Rangiah J agreeing), see also [314] and [321] (Collier J). The key reason was that the base salary — standard rates for 38 hours — provided for in the agreement was what represented ordinary pay for ordinary hours. The additional hours were paid at a higher rate.

50    In relation to public holidays, although working on those days as regular working days was part of the agreements for both salary systems, there was a further payment, over and above the base salary, for public holidays. The majority of the Full Court concluded that the public holiday payments were not OTE: at [119] (Allsop CJ, Rangiah J agreeing).

Whether the salary loading allowance is part of the “notional earnings base”

51    As explained above, the salary loading allowance will form part of the “notional earnings base” — and so be included in the calculation of superannuation guarantee payments due to be made to employees’ accounts — if the allowance falls within the definition of “salary” in the 1979 Act and/or the 1988 Act.

52    The definition of “salary” in those Acts (set out at paragraph 10 above) excludes a “recreation leave allowance”. That term is not defined. The parties did not refer to any authorities considering the meaning of “salary” in those Acts.

53    The opening language of the definition of “salary” refers to a figure that is calculated to annualise the total of the “pecuniary emoluments payable periodically and regularly” to the employee. The focus is on the annualised total of amounts paid periodically within the year. In the case of the 1988 Act, that is reinforced by the specific inclusions set out in subparagraphs (a)–(b), (d) and (f), which refer to the “annual rate” of certain allowances, payments and emoluments.

54    According to orthodox principles of statutory construction, the expression “recreation leave allowance” needs to be construed in context. That context is, most immediately, the whole of the definition of “salary”, part of which is the express exclusion of “recreation leave allowance”. Unlike a number of allowances that were expressly included, by subparagraphs (a)–(f) of the definition in the 1988 Act, “recreation leave allowance” was explicitly excluded from the definition in both the 1979 and 1988 Acts.

55    The two Acts in question concerned the entitlements of Victorian public servants and employees broadly; the legislation was not specific to the entitlements of, and superannuation of, teachers. This is relevant because it makes it clear that the terminology used in the definition of “salary” needs to be construed having regard to that context. This means that the expression “recreation leave allowance” is to be construed as capturing an allowance that was, in substance, an allowance in respect of recreation leave, and should not be construed as being limited to allowances that were labelled “recreation leave allowance”.

56    Having regard to the broad context in which the legislation was to operate, I also consider that the expression “recreation leave allowance” is properly to be construed as capturing allowances that were, in substance, recreation leave allowances even if they were not paid when an employee literally took annual (recreation) leave.

57    Teachers were entitled to 20 days’ annual leave, but the evidence explains that this was not in fact taken on specific days. The evidence also establishes that the ostensibly peculiar arrangements by which an entitlement to be paid salary loading allowance arose — the payment being made to those employed on a particular day of the year, the lump sum payment being made not connected with the actual taking of annual leave, and the allowance not being paid to those who were no longer employed on that date (exceptions aside) — are explained on the basis that teachers’ annual leave entitlements are taken to be acquitted during school holidays. Unlike other employees, teachers do not “take” those 20 days of annual leave over specific days.

58    It is evident that, minor wording changes and a hiatus during the Kennett government era aside, the entitlement to salary loading allowance for Victorian teachers has remained the same since the mid-1970s. In the period of concern before 1 July 2008, it was a recreation leave allowance, albeit one paid in a bespoke manner due to the peculiarities of the teaching profession. It has not lost that character along the way.

59    As such, the allowance was not “salary” as defined in the 1979 Act and the 1988 Act, and was not part of the notional earnings base. It follows that the Department has discharged its onus of showing the amended assessments in respect of the period before 1 July 2008 were excessive.

60    In view of these conclusions, it is not necessary to address contentions advanced regarding overtime opportunities for teachers, or whether the salary loading allowance had any link with additional costs people may experience when on annual leave. If it were necessary to determine the issue, I would conclude that the Department has not established that the introduction of salary loading allowance had any connection with the loss of such limited opportunities to earn overtime as may have been available to teachers outside school holiday periods. There is also no foundation in the evidence linking the salary loading allowance to additional expenses a teacher might experience in periods of leave, whether characterised as annual leave or school holidays. Further, I do not consider that the Department has established that salary loading allowance was a payment of a “temporary character” (and so was excluded from the definition of “salary” under the 1979 Act and the 1988 Act). In context, payments that are “temporary” in character are payments that are only made for a confined period of time. Although salary loading allowance was paid once per year, it was paid on an ongoing, recurring basis and so was not a payment of a “temporary character”.

Whether the salary loading allowance is part of OTE

61    Clause 24(1)(a) of the 2022 Agreement specifies the “ordinary hours of work” for full-time employees to be 76 hours a fortnight. This is, quite obviously, the fortnightly sum of 38 hours per week, and various other provisions of the 2022 Agreement make reference to 38 hours per week.

62    Teachers are paid “the salaries specified in Schedule 1” (cl 16(2)). Those salaries are set by reference to the ranges and teacher classification levels specified in the schedule. The 2022 Agreement does not make provision for “overtime”, but provides for teachers to have time off in lieu. (To the extent that other instruments outside the 2022 Agreement continue to refer to the potential to work overtime, as explained by Mr Bugden’s evidence, those references are historical remnants, of no present relevance.)

63    The important point to notice is that, under the 2022 Agreement, salary loading allowance is paid over and above the “salary” paid to teachers in respect of their ordinary hours of work. As Allsop CJ’s analysis in BlueScope draws out, the concept of payment at ordinary rates for ordinary hours is central to the proper contextual understanding of “ordinary time earnings”. The salary paid to teachers is the payment they receive at ordinary rates for their ordinary hours (76 hours per fortnight).

64    True it is, and as emphasised by the Commissioner, that teachers do not have to undertake additional work to be entitled to salary loading allowance. Rather, they are paid a full salary loading allowance as of right if they satisfy the conditions for the payment of that amount: being employed on the particular day at which eligibility is assessed, and having a full year of service. Those employed on the relevant date, but with less than a full year of service, are paid salary loading allowance pro rata. In this sense, salary loading allowance may be characterised as an “ordinary” payment, as the Commissioner submitted, because it is payable without teachers having to work additional hours over and above their standard hours.

65    Given the eligibility criteria for payment of salary loading allowance, the distinction between overtime hours and rates of pay (or additional hours at higher rates, as was the case in BlueScope), as compared with ordinary hours at ordinary rates is not to the point. But, contrary to the Commissioner’s submissions, neither the lack of such a distinction, nor the fact that teachers do not have to work any additional hours to be entitled to salary loading allowance, renders salary loading allowance necessarily part of OTE.

66    Salary loading allowance will only be OTE if it is part of a teacher’s “earnings in respect of ordinary hours of work”. I do not consider that a payment, to which a teacher would be entitled if employed on a certain day of the year, but to which the teacher would not be entitled if he or she had resigned prior to that date, can be characterised as “earnings in respect of ordinary hours of work”. Rather, the payment of salary loading allowance is a payment made in addition to the payments made to teachers by way of salary, in respect of their ordinary hours of work.

67    There was much discussion, in the course of submissions, about the purpose of the legislative scheme including the establishment of a simple and efficient system for the payment of superannuation guarantee amounts (as explained by Allsop CJ in BlueScope). On the facts of this case, it may be accepted that that statutory purpose does not positively support a conclusion that salary loading allowance is not OTE, because its inclusion in the definition of OTE would not inject complexity or require any enquiry into the individual circumstances of each teacher (cf, the individualised enquiry into working hours that was discussed in BlueScope as being antithetical to the simplicity of the regime). However, the fact that the inclusion of salary loading allowance in OTE would not be antithetical to the purpose of the statutory regime does not go far at all because the question remains whether salary loading allowance can be characterised as “earnings in respect of ordinary hours of work”. As I have explained, in my view, salary loading allowance cannot be so characterised.

68    For completeness, I note that the parties’ submissions also addressed the contention that salary loading allowance was akin to annual leave loading and was referable to a loss of overtime. This was one basis upon which the Department contended that salary loading allowance was not OTE.

69    For reasons already given, the Department has not established that salary loading allowance was introduced to compensate for loss of opportunities to earn overtime, but has established that salary loading allowance was introduced to give teachers the equivalent of annual leave loading, albeit the payment was structured as it was given the usual circumstance of teachers not taking identified periods of school holidays as recreation leave. But these matters are of no consequence in the present analysis, because establishing that salary loading allowance is not part of OTE does not require the Department to establish that the payment is analogous to annual leave loading, or that its payment is connected to a loss of opportunities to earn overtime. The legislation is drafted on the basis that OTE is the total of “earnings in respect of ordinary hours of work” (subject to some exclusions) and “earnings consisting of over-award payments, shift-loading or commission”. There is simply no anchor in the statutory language, context or purpose for the proposition that unless the payment is analogous to annual leave loading, or can be shown to be linked to lost opportunities to earn overtime, it will be OTE. While the presence of such features may assist in the analysis, their absence is not determinative.

70    The parties also made submissions regarding the rate at which salary loading allowance was paid. These submissions harnessed the discussion in BlueScope of ordinary rates for ordinary hours, as distinct from extraordinary rates for hours outside ordinary hours. The Department contended that one basis upon which salary loading allowance was not OTE was because it was not paid at the “ordinary rate of pay”, but rather was paid with a loading of 17.5%. The Commissioner submitted that the allowance is at an “ordinary” rate because there was nothing “extraordinary” about it, given it was a mandatory annual lump sum paid in respect of ordinary hours, and “ordinary rates” are not limited to base rates set out in industrial instruments.

71    I do not consider either party’s submission to be persuasive. The discussion in BlueScope of ordinary rates for ordinary hours, as distinct from extraordinary rates for hours outside ordinary hours, needs to be understood in context. In that case, the issue before the Court concerned payments at higher rates for “additional hours”, and payments in respect of work on public holidays. Those payments formed part of annualised and aggregate salary arrangements through which periodic payments were made, which included amounts on account of those hours and days. Here, we are concerned with a single, lump sum payment, made once a year. The amount of that payment is calculated using a formula that uses four weeks of the teacher’s regular salary as the base to which the 17.5% figure is applied, but it does not involve a teacher being paid for particular hours worked at a “higher” (or extraordinary) rate. Not every consideration that is decisive in one case will be decisive in, or even particularly relevant to, another case.

72    Nor does the express exclusion of some lump sum amounts in the definition of OTE — such as payments on termination for unused sick leave and unused annual or long service leave, which are expressly excluded by s 6(1)(a)(i) of the SGA Act — assist the Commissioner. The drafters of legislation may specifically exclude certain matters from a definition to avoid any suggestion that they are included. While such exclusions are relevant to the construction exercise, I do not accept that the express exclusion of those termination payments in the definition of OTE means that they, ipso facto, would otherwise have fallen within the definition of OTE, still less that this means any lump sum payment which is not referable to excess hours being worked (viz, salary loading allowance) likewise must fall within the statutory definition of OTE as “earnings in respect of ordinary hours of work”.

73    As noted, argument proceeded by reference to the 2022 Agreement, on the basis that other instruments applying during the period 1 July 2008 to 31 December 2022 were in relevantly the same terms. It follows that the conclusions I have reached by reference to the 2022 Agreement apply throughout this period.

Conclusion

74    The Department has established that the salary loading allowance was not part of the relevant employees’ “notional earnings base” before 1 July 2008, and was not part of the relevant employees’ OTE between 1 July 2008 and 31 December 2022. It follows that the Department has established that the amended assessments were excessive.

75    The parties will be invited to confer on orders to give effect to these reasons, and to address costs.

Associate:

Dated:    10 July 2026