Since 1 July 1992, when the Superannuation Guarantee Assessment Act was enacted, employers have needed to provide a minimum level of superannuation support for employees.
Generally, an employer who pays an employee $450 or more before tax in a calendar month is required to pay superannuation as a % on top of the employee's wages. Currently, the SG is 9.5% of the employee's ordinary time earnings (OTE).
An employer is required to make the superannuation guarantee payment for an employee at least quarterly within 28 days of the end of the relevant financial quarter. The payment must be made on an employee’s behalf to a complying Australian superannuation fund. Note, payments can be made more regularly if you want (eg – monthly), as long as the total SG obligation is paid by the relevant due date.
Failure to make these payments results in the employer becoming liable to pay an SG charge. The SG scheme is administered on a self-assessment basis and the charge comprises the following components:
The total of the individual SG shortfalls for each employee for the quarter,
A nominal interest component calculated by regulations (currently 10% p.a.), and
An administrative charge which is $20 per employee per quarter.
Part 7 penalties of up to 200% of the total of the above components may also be imposed by the ATO (at the Commissioner’s discretion) for failure to keep records, failure to provide SG statements when required, and for other offences.
Unlike regular employer superannuation contributions, SG charge payments are not tax deductible for the employer.
The shortfall and interest components of the SG charge are redistributed by the ATO to a complying superannuation fund, a complying approved deposit fund, and RSA, or the Superannuation Holding Accounts Special Account for the benefit of the employees for whom the charge was paid.
ITS EASY TO RUN INTO PROBLEMS WITH SG
For various reasons it is not uncommon for employers to expose themselves to these rather complex administrative arrangements inadvertently, or through tardiness. Examples would include:
Delaying superannuation payments due to cash flow problems.
Company directors and family business employees not realising that SG contributions apply to them.
Engaging contractors who fit into the extended SG definition of employee by supplying primarily their own labour.
Engaging contractors who are really common law employees.
Errors by employers (and software providers) due to the complexity of Industrial laws and Instruments, and uncertainty regarding the definition of what comprises ordinary time earnings.
The definition of ordinary time earnings has been a moving target. Not only did the definition change from 1 July 2009, but interpretations are also changing. A prime example of this is the way the ATO’s own commentary on whether or not leave loading is OTE has changed, leaving employers relying on the ATO interpretation exposed. Other areas where there is common confusion about the concept of OTE include casual employees working additional hours, over award payments, bonuses, payments in lieu of notice, paid other leave, and payments to long distance drivers.
Many employers simply don’t want to deal with the SG charge which is understandable because it is complex, it involves extra paperwork, it involves stiff penalties, the employee receives notification about it, and the payments are not tax deductible. Some employers opt to pay the superannuation late into the employee’s nominated fund. Unfortunately, that does not eliminate the liability for the SG charge, and, in some instances the fund does not accept the contribution.
Getting superannuation guarantee wrong is a high-risk proposition. Even if an employer feels they are doing the right thing in the full knowledge and understanding of the worker, an ATO dob-in following a falling out can instantly unravel that. On a larger scale, having multiple willing “contractors” reclassified as employees is often sufficient to destroy a business. Not only that, SG liabilities are included in the ATO’s director penalty regime. This means that directors can be personally liable for the deemed SG liability.
Tips to avoid these problems:
Avoid engaging individuals as contractors. Consider offering contracts to entities only.
Ensure contracts with individuals are for a specific result rather than for labour at a particular rate.
Understand clearly how the concept of ordinary time earnings fits in with your terms of engaging workers.
Pay super on or before 28 days after quarter end.
Look into engaging robots, software and AI in your business.
THE AMNESTY IS A ONE OFF WITH A STING IN THE TAIL
The key features of the Amnesty are:
Applicable to quarters between when SGC started on 1 July 1992 through to 31 March 2018.
The amnesty period will start from 24 May 2018 (when it was originally announced) and will end six months from the date the laws receive royal assent. This will take us approximately to the end of August 2020 which is not that much time.
SG Charge and interest is still applicable, but importantly, will be tax deductible for the relevant quarters during the amnesty period.
The administrative charge of $20 per employee per quarter is waived.
The punitive Part 7 penalties will be waived.
The sting in the tail is that once the amnesty period is over the Commissioner’s discretion to remit Part 7 punitive penalties is now restricted under the legislation which means that the impact of being caught with SG issues after the amnesty ends will be far harsher.
Comment: The current approach of the government is less than helpful. It is very evident that the complexity and inflexibility of the industrial relations system is triggering widespread errors and non-compliance, even in the most respectable organisations with well resourced IR departments. That is the tip of the iceberg! Instead of acknowledging and addressing the underlying problems, the approach has been to ramp up enforcement and label businesses facing these problems as “wage thieves”. A very concerning attitude and trend against business and employment.
What you should do:
Review your SG compliance. How far to go back? We would say that any SG review by the ATO is unlikely to go back beyond 3-5 years.
Consider taking advantage of the SGC Amnesty.
Please contact our office if you need any assistance regarding this matter.