What are the rules when offering choice of super fund to a new employee?

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When a new employee starts working for you, in most cases you must allow them to choose into which super fund you pay their Super Guarantee (SG) contributions.

But as an employer, there are some important rules and deadlines you need to be aware of when it comes to setting up super contributions for your newest member of staff.

Here’s a simple guide to offering choice of super fund and making sure you start on the right side of the rules.

Who is eligible to choose their fund?

These days, employees generally get to choose their own super fund for SG contributions unless they are considered ineligible to make a choice.

In most cases, ineligible employees are workers employed under an enterprise agreement (EA) or award that specifies the super fund their SG contributions must be made into, or they are members of certain defined benefit funds, or are state and federal government employees.

If you are uncertain what award or industrial agreement covers your new employee, check the Fair Work website or the workplace relations department in your state or territory.

Get your paperwork right for new employees

When new employees join your business, in most cases they are eligible to choose their own super fund. Provided their choice complies with super law and you receive all the necessary information, you must pay contributions into their chosen super fund.

To notify you of their choice, your new employee needs to complete the ATO’s Standard Choice Form and return it to you as soon as possible. (Super law also allows them to nominate their chosen fund in writing, provided they give you all the required information.)

By law you are required to give new staff members a Standard Choice Form within 28 days of commencing work, unless they give you details of their chosen fund first. For more information, read SuperGuide article The Superannuation Standard Choice Form explained. If your new employee doesn’t nominate a super fund, you must pay their SG contributions into your business’s default super fund.

Choice of fund rules and obligations for existing employees

Your existing employees also have the right to choose their own super fund and there are rules you need to follow:

1. An employee can notify you of their nominated super fund at any time, even if they failed to select a super fund when they first started with you.
2. To formally notify you of their nominated super fund, an employee must fill out a Standard Choice Form and return it to you. 
3. If an employee asks for a Standard Choice form, you are required to provide it to them within 28 days.
4. There is no limit to the number of times an employee can request a change to their nominated super fund, but you are only required to accept a new choice from the employee once every 12 months.
5. You must provide a Standard Choice Form to an employee if you change your default fund and you are currently paying their super contributions into that fund.
6. If you are unable to contribute to your employees chosen fund – or if it stops being a complying super fund – you are required to give your employee a Standard Choice Form within 28 days.

Recordkeeping and your Standard Choice Forms

Under super law, you must keep a copy of each Standard Choice Form you receive for five years.

When your employees give you a completed Standard Choice Form, you do not need to forward it to the ATO or your employee’s chosen super fund. A Standard Choice Form simply acts as an official notification to you of where your employee wants their super contributions paid.

Employers are required to make SG contributions for their eligible employees by the quarterly due dates. But if your employee hasn’t chosen a super fund – or provided you with all the necessary information – you are still required to pay the contribution by the due date into your default super fund.

What to do next

Once an employee advises you of their chosen super fund, you must commence paying super contributions into that fund within two months of receiving a valid choice.

If you don’t pay your employee’s super contributions into their chosen super fund, the ATO will penalise you for not complying with super law. Failing to meet your choice of fund obligations means you are liable to pay a choice liability for your employee.

Passing on your employee’s TFN

Another important obligation you need to fulfill when setting up an employee’s super contributions is to provide their chosen super fund with their tax file number (TFN).

Once your employee gives you their TFN, you are obligated to provide it to their chosen super fund. You must do this when you make the first super contribution for the employee, or within 14 days of receiving their TFN if it was not available at the time of your first contribution for them.

Super funds are unable to accept personal voluntary contributions from employees if they don’t have their TFN. This makes it essential to pass on a TFN if your employee wants to make personal super payments as a payroll deduction.

Employer beware: Giving financial advice to employees

There are strict rules in place about giving advice or product recommendations when it comes to financial products like super funds, so be careful when you talk to your employees about superannuation.

You are permitted to provide your employees with factual information about:

• How choice of fund works
• The process of choosing a super fund
• Your obligations as an employer
• How they nominate a super fund as their chosen fund.

It’s up to your employee to find out how to join a super fund and get the product information and disclosure statements they need to select the right super fund for their personal situation. Your employees are also responsible for filling out their super fund’s membership application correctly.

Handling salary sacrifice requests

Although you are not permitted to give financial advice to your employees, you can assist them if they would like to implement a salary sacrifice arrangement with you.

Employers are not required to agree to a salary sacrifice arrangement, but if you do permit your employees to make these before-tax payments from their wages, you must ensure you enter into a written agreement.

A written salary sacrifice agreement with your employee must state the terms and conditions of the arrangement and can only relate to future earnings.

When a super fund receives a super contribution from you it doesn’t differentiate between SG contributions and salary sacrifice amounts. So you need to keep records of all your super contributions to ensure they can be properly reported. Salary sacrifice amounts need to be reported on an employee’s annual payment summary as reportable employer super contributions.