The notional salary for the Senior Executive Service (SES) has been reviewed.

Effective from 1 July 1998 notional salary is to be calculated by reference to an individual SES officer's superannuation guarantee shortfall as defined in the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth.

The Superannuation Guarantee charge percentage (levy) is only payable on earnings up to the maximum contribution base determined each year by the Australian Taxation Office in accordance with the Act. As of 1 July 1998 the maximum contribution base is $97,920 per annum and the charge percentage is 7%.

As the maximum contribution base changes annually and the charge percentage changes every second year until 2002, a new method of calculating notional salary has been implemented. The new method of calculation means that notional salary rates will vary between salary packages with a maximum notional salary rate for the current financial year of 93.46%. The attached calculation sheet and guidelines will assist in the calculation of notional salary for individual salary packages.

This Circular replaces the advice of Circular 96-13 and any reference to the calculation of notional salary in other Premier's Department documentation is likewise amended.

C. Gellatly
Director-General

Notional Salary Calculation Sheet

Use the following for Notional Salary Calculations from 1 July 1998:

If the Total Remuneration Package (TRP) is greater than $104,774.40 then the notional salary is the TRP - $6,854.40

Notional Salary = TRP - $6,854.40

For example, if an SES officer was on a TRP of $200,000.00 then the notional salary for that package is $200,000.00 - $ 6854.40 = $193,145.60

If the TRP is less than or equal to $104,774.40 then the notional salary is the TRP divided by 1.07.

Notional Salary = TRP ¸ 1.07

For example, if an SES officer was on a TRP of $100,000.00 then the notional salary for that package is $100,000.00 ¸ 1.07 = $93,457.94

A detailed explanation of these calculations is available in the Guidelines for Notional Salary.

Guidelines for Notional Salary Calculations

The following guidelines have been prepared to assist in the calculation of 'notional salary'. Notional salary has been used since 1988 for three purposes: for calculation of payments of accrued leave for SES on separation; non-SES relieving allowances in SES positions; and cashing in of leave by SES officers.

Notional Salary Defined:

Notional salary is defined in the Public Sector Management Act 1988 (the Act) as:

Notional salary, in relation to a chief executive officer or a senior executive officer, means:

1. for the purpose of calculating the amount of an entitlement paid on or before 31 August 1996 - 72.5 per cent of the amount of the remuneration package for the officer as last determined before the time of payment, or
2. for the purposes of calculating the amount of an entitlement paid between 1 September 1996 and 30 June 1998 (inclusive) - 94.3 per cent of the amount of the remuneration package for the officer as last determined before the time of payment, or
3. for the purposes of calculating the amount of an entitlement paid on or after 1 July 1998 - the total amount of the remuneration package for the officer as last determined before the time of payment, less the superannuation guarantee amount payable in respect of the officer.

The superannuation guarantee amount is defined in the Act as:

The minimum amount payable to a superannuation fund or scheme in respect of an officer that is sufficient to avoid an individual superannuation guarantee shortfall within the meaning of the Superannuation Guarantee (Administration) Act 1992 of the Commonwealth in respect of the officer.

Calculations from 1 July 1998:

As can be seen from the definition provided at (c) for notional salary calculations after 1 July 1998, there is a need to calculate the superannuation guarantee amount in respect of each individual remuneration package. Set out below is the process which enables the notional salary for each package to be calculated.

Mandatory Employer Contributions:

The Superannuation Guarantee (Administration) Act 1992 of the Commonwealth defines the current charge percentage (CP) and maximum contribution base (MCB) applicable for mandatory employer superannuation contributions. The maximum contribution base changes annually and is released by the Australian Taxation Office around 1 July each year. The charge percentage increases every second year (even numbered years) to a maximum of 9% in 2002.

Currently the maximum contribution base is $97,920 per annum and the charge percentage is 7%.

A Circular will be issued each year to advise of any changes in these amounts.

The employer is not required to pay superannuation on earnings above the maximum contribution base. Since SES packages are inclusive of employer costs they include the employer's superannuation contributions. These employer contributions are mandatory and part of every salary package. As the definition given in the legislation states, from 1 July 1998 notional salary is the total remuneration package available less the employer's required superannuation contribution.

It is important to note here the difference between employer and employee contributions. Employee contributions are voluntary and form part of the salary component of the total remuneration package. Employer contributions are the mandatory amount which employers have to pay under the Superannuation Guarantee (Administration) Act 1992 to avoid an individual superannuation guarantee shortfall.

For the purposes of notional salary only, calculations do not include any other employer superannuation contributions that may be levied to an individual officer's remuneration package.

Notional Package Limit (NPL):

To comply with the legislation the employer only has to pay contributions up to the maximum contribution base, therefore there is a point beyond which remuneration packages incur no extra mandatory employer's superannuation contributions. We will call this point the notional package limit (NPL).

This point (NPL) can be found by adding the employer's mandatory superannuation contribution for the maximum contribution base to the maximum contribution base (MCB).

Expressed as a formula the calculation is:

NPL= MCB + (MCB x CP) = MCB x (1+CP)

If we use the current MCB of $97,920 and CP of 7%:

NPL= 97,920 x (1+0.07) = $104,774.40

The formula represents the maximum contribution base plus 7% of the maximum contribution base. This is to reflect the employer's mandatory superannuation contribution which is included in the total remuneration package (TRP) making the TRP 107% of the MCB.

Remuneration Packages Less Than or Equal to the NPL:

Thus, where the TRP is less than or equal to the notional package limit then the notional salary is found by using the following formula:

Notional Salary = TRP ¸ (1+CP)

For example, the notional salary for a TRP of $100,000 is found by using the following calculation:

Notional Salary = 100,000 ¸ (1+0.07) = $93,457.94

Remuneration Packages Greater Than the NPL:

Where a TRP exceeds the notional package limit, employer superannuation contributions are only required up to the maximum contribution base. This is the Maximum Mandatory Employer Superannuation Contribution (MMESC), which can be found using the following formula:

MMESC = MCB x CP ie

= 97,920 x 0.07

= $6854.40

Thus for all total remuneration packages above $104,774.40:

Notional salary = TRP - MMESC

For example, the notional salary for TRP of $200,000.00 is found using the following calculation:

Notional Salary = $200,000.00 - $6854.40 = $193,145.60

Summary:

1. If the TRP is greater than $104,774.40 then

Notional salary = TRP - $6,854.40

2. If TRP is less than or equal to $104,774.40 then

Notional salary = TRP ¸ (1+0.07) or alternatively

= TRP x 0.9345.

Enquiries:
Further enquiries on these calculations may be directed to:

Trevor Lee (all enquiries) (02) 9228 5649
Justice and Planning Team
Stephen Auburn (02) 9228 5627
Jane Compton (02) 9228 5393
Economic Development and Natural Resources Team
Tom Pelle (02) 9228 3146
Health and Social Welfare Team
John Howard (02) 9228 4770
Central Services, Education and the Arts Team
Gail May (02) 9228 5516