Have you been paying yourself superannuation?
If you’re running a business, you’re responsible for paying your own superannuation as well as your employees’. Here’s what you need to know when it comes to paying yourself superannuation, writes Nina Hendy.
If you’re a small business with employees, it’s important you clearly understand the rules around superannuation payments.
The Superannuation Guarantee (SG) applies to employees aged 18 and over who earn more than $450 before tax in a calendar month.
You may also need to pay superannuation for some contractors, depending on their earnings and you should check with the ATO or an accredited business advisor to be certain.
Are you paying yourself, too?
If you’re a small business owner, the responsibility of paying yourself superannuation rests solely with you.
A great way to know how much to pay is by paying yourself a regular wage. That way you can calculate what 9.5 percent of that wage is per year and make sure you stash that away into your super fund.
You’ll also want to track super payments in your cloud accounting program. To find out how to do this in your MYOB software, we’ve provided some pointers at the end of this article.
How much do I need to pay?
The minimum a small business needs to pay in super is 9.5 percent of your employees’ ordinary earnings (OTE), which includes payments such as shift loadings, allowances and commissions, but not overtime payments.
Small businesses need to use the ATO SuperStream system that sends data electronically between employers, funds and the ATO.
How often should I pay?
You need to pay super in lump payments at least four times a year, but you can pay more often if you like. But, some super funds require employers to make contributions monthly, so be sure to clarify with the fund.
If you miss a payment, you could be hit with a fee for your super contribution shortfall, interest and an admin fee by the ATO.
How much super do I need?
The example below, published on the MoneySmart website, gives you a rough idea of how much you’ll need to support either a modest or comfortable retirement. It applies for people retiring at 65 years of age who live to an average life expectancy of about 85, and assumes you own your home.
|ASFA Retirement Standard||Annual||Weekly|
|Couple – modest||$39,353||$754|
|Couple – comfortable||$60,264||$1154|
|Single – modest||$27,368||$524|
|Single – comfortable||$42,764||$819|
These calculations show that a lump sum needed to support a comfortable lifestyle for a couple at $640,000 (or $545,000 for a single person), assuming a partial Age Pension. But, these figures are subject to change as the cost of living rises and utility bill costs and the like rise, so shouldn’t be taken as gospel.
Another way to estimate how much you’ll need once you leave the workforce is to assume you need 67 percent (two-thirds) of the income you had before you retired in order to maintain the same standard of living in retirement, according to MoneySmart.
However, the site also points out that this estimate is only suitable for above average income earners by Australian standards.
Use a calculator like this one from the ATO to calculate how much you’ll need in super and other savings to finance your retirement.
Not enough, some say
Although, some industry watchdogs don’t believe that these government estimates will be enough to fund a comfortable retirement.
The Association of Superannuation Funds of Australia (ASFA) wants the Super Guarantee (SG) to be lifted from 9.5 percent to 12 percent as soon as possible, rather than from 2021 as currently proposed.
ASFA points out that an average income earner aged 30 today, and on a $70,000 salary, would have $71,600 less when retiring at 67 if the SG stays at 9.5 percent. For this person, bringing forward the timetable for lifting the rate of SG by two years will bolster their retirement savings by an additional $7,000.
And while the ‘right’ level of retirement savings will vary person to person, these figures serve as a good guide for small business owners.
Also bear in mind that it’s more expensive to live in certain parts of the country – council rates, insurances and general expenses vary depending on where you live.
How are you tracking?
Once you’ve calculated how much you’ll need to fund retirement, the next step is to look at how you’re tracking by making the time to see how your fund’s investments are performing and whether your super account balance is building at an adequate rate.
Business owners can grow their nest egg by taking a number of small steps. Start by looking beyond the default investment set by your super fund, assessing your own risk appetite and stage of life.
Also, make sure you top up your super account with your own regular contributions. Even small amounts can make a huge difference thanks to compound interest.
After you’ve recorded pays for your employees, AccountRight users can make super payments to their funds directly with Pay Super.
Using MYOB Essentials? In that case, super payments are processed through the MYOB Super Portal, and you can learn more about that process here.
The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered financial advisor as each individual’s circumstances will vary.