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If there’s one thing guaranteed to have employers pulling their hair out, it’s red tape. Unfortunately, your obligation to pay super to employees comes wrapped in red tape and slip-ups can be costly. So what are the rules?
The Superannuation Guarantee (SG) is the official term for compulsory super contributions made by Australian employers on behalf of full-time, part-time or casual employees who:
- Earn more than $450 before tax in a calendar month
- Work in Australia (including temporary residents and working holiday makers)
- Are over the age of 18 (employees under 18 must work more than 30 hours per week to qualify for the SG payment).
If you’re employing a contractor who meets these criteria, you must make the SG payment based on the labour component of their contract. That is, on the amount you’re paying them for their labour as part of their contract. This amount should be itemised on the invoice they provide for their services.
How much is the SG payment?
The SG rate is currently set at 9.5% of an employee’s ordinary time wages or salary. SG payments can include employee salary-sacrificing contributions to a super fund.
Ordinary time earnings include your employee’s normal hours of work plus any of the following potential entitlements:
- Shift loading
- Leave loading
- Termination payments made in lieu of notice
- Back pay
However, ordinary time earnings don’t include overtime payments. The Fair Work Act defines normal hours of work as 38 hours per week, unless otherwise specified in an award or other industrial agreement.
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Need to know
From 1 January 2020, employers can’t use employee salary-sacrificed super contributions to reduce their SG payment obligations, regardless of the amount an employee elects to salary sacrifice. This means an employee’s salary-sacrificed amounts do not count towards an employer’s SG obligation.
If you’re an employer, you must make SG payments each quarter on behalf of your employees to a complying super fund or retirement savings account. These payments are tax deductible in the financial year they are made. They also count towards each employee’s concessional super contributions cap (currently $25,000 a year).
You can choose to pay more than the 9.5% SG for an employee, but the excess amount must be reported as a reportable super contribution on their annual payment summary. This amount isn’t included in an employee’s taxable income, but it is considered in determining their eligibility for government benefits.
The SG rate is scheduled to increase to 10% from July 2021 and then progressively increase to 12% by July 2025, as outlined in the table below.
|Financial year||Super Guarantee|
|1 July 2018 – 30 June 2019||9.5%|
|1 July 2019 – 30 June 2020||9.5%|
|1 July 2020 – 30 June 2021||9.5%|
|1 July 2021 – 30 June 2022||10%|
|1 July 2022 – 30 June 2023||10.5%|
|1 July 2023 – 30 June 2024||11%|
|1 July 2024 – 30 June 2025||11.5%|
|1 July 2025 – 30 June 2026||12%|
What are the quarterly due dates for SG payments?
The quarterly due dates for SG payments are outlined in the following table.
|Quarter||SG payment due date|
|1 July – 30 September||28 October|
|1 October – 31 December||28 January|
|1 January – 31 March||28 April|
|1 April – 30 June||28 July|
Payments can be made more regularly, so long as your total SG obligation for each of your employees is made by the quarterly due date. SG payments are calculated from the date an employee starts working for you.
Is there an SG payment limit?
In a word, yes.
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When an employee’s ordinary time earnings exceed a certain limit, you don’t have to pay the SG on earnings above this level, though you can if you choose. This limit – $55,270 a quarter in 2019/20 rising to $57,090 a quarter in 2020/21 – is called the maximum super contribution base.
5-step guide to making SG payments for your employees
Step 1: Set up a record-keeping system for your SG calculations and payments.
You must keep records for five years that show how you calculated your SG payments for each employee, and that you provided each person with a choice of super fund if necessary (explained further in Step 3). Failure to keep appropriate SG records can attract ATO penalties.
Step 2: Establish all employees you have an SG payment obligation for.
Step 3: Calculate your SG obligation for each employee. As mentioned earlier, you can’t use any salary-sacrifice arrangements to reduce your SG payments.
Step 4: Make your quarterly SG payment for each employee to a complying super fund or retirement savings account (RSA) by the due date.
Be aware that if you make SG payments to a non-complying fund, you won’t have met your obligations. You can check if a fund is complying by using the ATO’s online Super Fund Lookup service. A retirement savings account is typically offered by banks and building societies.
If you’re a small business (you employ less than 20 employees or have an annual turnover less than $10 million), you can use the ATO’s Small Business Superannuation Clearing House to make your SG payments. This is a free service that allows you to make a single electronic payment and the ATO will then automatically distribute appropriate amounts to the super funds of your employees using its SuperStream facility.
If you’re a larger organisation, you also use the SuperStream system for your SG payments.
The first time you make an SG payment to a complying super fund or RSA on behalf of an employee, you need to provide the employee’s tax file number to the fund or account provider. Failure to do this can result in ATO penalties.
Some industrial awards specify where the super fund employee SG payments must be made to. If not, you have to offer your employees the option to choose a super fund when they start working for you by giving them a Superannuation standard choice form. You must also nominate a complying super fund that their SG payments will go into if they don’t choose their own complying fund.
Step 5: Check if you need to include any reportable super contributions (any additional payments you may have made above the SG for any employee) on their annual payment summary.
The SG charge
The SG charge is levied by the Australian Taxation Office (ATO) if you fail to make your employee SG payments on time. This charge is not tax deductible and includes:
- The shortfall amount
- Interest (currently 10%)
- An administration fee of $20 per employee per quarter.
If you don’t make your SG payments on time, you’ll also be required to lodge a superannuation guarantee charge statement to the ATO – otherwise you’ll be liable for an additional penalty.
When you make your late SG payment, you may be able to:
- Use a late payment offset to reduce your super guarantee charge prior to receiving your assessment from the ATO
- Carry your late payment forward so that it’s a pre-payment of a future SG obligation for the employee concerned, provided it is within the next twelve months.
The ATO prioritises the collection of unpaid SG charges. For example, if you’re a company director, they have the power to issue you with a breach notice and hold you personally liable for any outstanding SG payments. Or they can issue garnishee notices to your financial institution to direct them to divert company or business funds to pay any outstanding SG payments.
The superannuation guarantee amnesty
On 6 March 2020, the federal government introduced a one-off super guarantee (SG) amnesty to correct past unpaid SG amounts. Employers were given a six-month window, until midnight on 7 September 2020, to disclose, lodge and pay unpaid SG amounts for their employees.
To remain eligible for the amnesty, you must declare and pay your SG shortfalls and interest charges by the cut-off date. Payments made during the amnesty can be claimed as tax deductions and not incur administration charges or penalties.
However, in recognition of the impact of COVID-19, the ATO says it will work with employers facing financial difficulties on flexible payment plans beyond 7 September, provided they apply for the amnesty by that date. Unfortunately, only payments made by 7 September will be tax deductible.
The ATO has warned that employers who choose not to come forward during the amnesty will face significant costs if underpayment of SG amounts is discovered in future audits. After the amnesty, shortfalls will attract a minimum penalty of 100% and as much as 200%.
The SG is a legal compliance obligation for all employers in Australia. Failure to comply could attract significant penalties from the ATO, so it pays to understand your obligations.
The information contained in this article is general in nature.
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