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Superannuation Guarantee Refresher

We have previously sent you newsletters discussing the requirement for employers to make payment of superannuation contributions for their employees quarterly.

This newsletter is a refresher on employer obligations.  In summary, the obligation is to make a minimum superannuation contribution to a complying superannuation fund on behalf of all eligible employees on a quarterly basis.  It is therefore a three step process:

1.      Identify eligible employees;

2.      Calculate the contribution payable; and.

3.      Make payment of the contributions by the due date.

Specifics for each step are briefly set out below.  Additionally, we set out the consequences for an employer for failing to meet their superannuation contribution obligations. 

We remind you that Superannuation Guarantee obligations are a complex area of law and that you should seek advice if you are unsure of your obligations as an employer or entitlements as an employee.

IDENTIFY ELIGIBLE EMPLOYEES

Generally, an employer is required to make contributions for all employees aged between 18 and 69 who are paid in excess of $450 (including tax withheld) in a month.  The employee’s status as full time, part time or casual does not affect this obligation.

Employees under 18 may be entitled to contributions where they work at least 30 hours a week. 

Additionally, an employer may be required to pay superannuation contributions on behalf of contractors where those contractors are natural persons and the contract is mainly for their personal services.  Superannuation contributions are not required where the contractor is a partnership or a company.

CALCULATE THE CONTRIBUTION PAYABLE

Generally, an employer is obligated to pay superannuation contributions representing 9% of each employee’s Ordinary Times Earnings (OTE).  An employer may elect to pay larger contributions, say under a salary sacrifice arrangement.

OTE is essentially those earnings that relate to the employee’s ordinary hours of work.  The attached table lists a number of common payments and their status as OTE.  Specific advice may be required when dealing with flexible employment situations that involve irregular hours.

Mandatory superannuation contributions are capped to earnings of $42,220 per quarter for the 2011 financial year.  This means that the maximum mandatory contribution is $3,800 per quarter.  This cap is indexed each financial year.  An employer can pay contributions in excess of this amount but is not required to under the Superannuation Guarantee law.  An employer should refer to the employee’s contract, award, etc before seeking to cap superannuation contributions.

MAKE PAYMENT OF THE CONTRIBUTIONS BY THE DUE DATE

Contributions must be paid no later than the 28th day of the month following the end of the financial quarter (31 March, 30 June, 30 September & 31 December) in which the obligation arises.

Contributions must be made to a complying superannuation fund and must be to either the employer’s default fund, the fund selected by an employee by way of a standard choice form or to a fund stipulated in an award or other industrial agreement.  If you are not familiar with the Choice of Superannuation Fund rules we recommend you seek advice.

We refer you to our newsletter of 27 May, 2010 regarding the Small Business Clearing House that operates through Medicare Australia and provides a free superannuation contributions clearing house for employers with less than 20 employees.  Please contact our office if you would like a copy of this newsletter.

WHAT HAPPENS IF INSUFFICIENT CONTRIBUTIONS ARE PAID BY THE DUE DATE?

If an employer fails to pay sufficient contributions on behalf of any employee by the due date they are required to lodge a Superannuation Guarantee Charge (SGC) Statement with the ATO.  The SGC Statement is a means to assess the SGC payable.

The SGC statement must be lodged with payment of the SGC by the 28th of the month following the due date for payment of the original contributions (28 November, 28 February, 31 May and 31 August).

The penalty for late lodgement of a SGC Statement is up to 200% of the SGC assessed on same.  Additionally, General Interest Charge may be applied by the ATO for any late payment of the SGC.

HOW IS THE SGC CALCULATED?

SGC consists of three components.  The shortfall amount, the administration fee and interest.

The shortfall amount is the shortfall of actual contributions paid by the due date over contributions payable.  For the purposes of calculating this amount the employer must use Salaries & Wages as the contributions base rather than OTE.  Please refer to the attached table, Salaries & Wages can include items that are not included in OTE and as such, contributions payable can often increase.

Any late payments may be eligible to reduce the shortfall amount.

The administration fee is $20 per employee per quarter and the interest component is charged at the rate of 10% pa.

The SGC is not tax deductible.  Accordingly, failure to pay superannuation contributions by the due date may result in a significant increase in Income Tax payable for employers.

WHAT HAPPENS WITH THE SGC?

Upon collection of the SGC the ATO is required to re-distribute the shortfall component to a complying superannuation fund account of the relevant employee. 

The ATO must provide the relevant employee written notice of the shortfall amount and this notice will also include options for the re-distribution of the shortfall amount.

RECORD KEEPING

Failure to keep adequate payroll and superannuation records by employers can result in significant fines.  These can be as much as $3,300 for sole traders and $16,500 for corporations.

Furthermore, an administrative penalty of up to $2,200 may apply.

If you require advice on record keeping obligations please contact our office.

IN SUMMARY

As you can see, the consequences of an employer failing to meet their Superannuation Guarantee obligations can be very significant.  Furthermore, the law governing employee superannuation is very complex, particularly where it intersects with the industrial relations landscape and the Choice of Superannuation Fund rules. 

We recommend that employers pay close attention to their obligations and that any person who is unsure of their rights or obligations contact our office for specific advice.

Before we sign off, all employers should remember that superannuation contributions are deductible in the period in which they are made.  As such, payment of contributions prior to 30 June each year can be a powerful means of maximising your tax position.

Payments to employee in relation to....

Salary & Wages

Ordinary Times Earnings




Awards and agreements



A simple overtime situation
Yes No
Overtime hours agreement prevailing over an award Yes No
Agreement supplanting award removes distinction between ordinary hours and other hours

Yes

Yes

No ordinary hours of work stipulated

Yes

Yes

Causal employee – shift loadings

Yes

Yes

Causal employee – overtime payments

Yes

No

Causal employee – overtime paid due to a “bandwidth” clause

Yes

No

Piece rates – no ordinary hours of work stipulated

Yes

Yes

Overtime component of earnings based on “hourly driving rate” formula stipulated in an award

Yes

No

Allowances

 

 

Allowance by way ofunconditional extra payment

Yes

Yes

 Expense allowance expected to be fully expended

No

No

 Danger allowance

Yes

Yes

 Retention allowance

Yes

Yes

 Hourly on-call allowance in relation to ordinary hours of work for doctors

Yes

Yes


Payment of expenses

 

 

Reimbursement

No

No

 Petty Cash

No

No

 Reimbursement of costs

No

No

 Payments for unfair dismissal

No

No

 Workers' compensation - returned to work

Yes

Yes

 Workers' compensation - not working

No

No

Leave Payments


 

 

Annual Leave

Yes

Yes

Termination Payments


 

 

Termination Payments - in lieu of notice

Yes

Yes

Termination payments - unsual annual leave

Yes

No

Bonuses


 

 

Perfomance bonus

Yes

Yes

Bonus labelled as ex-gratia but in respect of ordinary hours of work

Yes

Yes

Christmas bonus

Yes

Yes

Bonus in respect of overtime only

Yes

No