As your business grows, one of the things you must focus on is your employer superannuation obligation. Many business owners feel it is just a pain because it can seem complicated to manage. Yet, drop the ball on super and you can betray the trust of your employees, incur the wrath of the ATO and lose valuable tax deductions while incurring fines. So here are the basics you need to know.
1. What are employer superannuation obligations?
For the 2014-15 fiscal year, employers have to pay 9.5 percent (up from 9.25 percent) superannuation when an employee is paid $450 or more before tax in a month and is:
- Over 18 years OR
- Under 18 years and works over 30 hours a week
This is called the superannuation guarantee (SG) scheme, and it applies to all full-time and part-time employees and some casual employees. If you are unsure if an employee is eligible for the SG, use the ATO’s SG eligibility decision tool to check. Note that some awards, enterprise agreements and other registered agreements have additional terms about superannuation. These contributions form part of an employee’s concessional contribution cap.
2. What is concessional super, and what is involved for employers?
Generally, a concessional contribution is a pre-tax contribution that is made by (or for) an eligible employee to a super fund and is assessable income of the fund. That means that the fund will pay the 15 percent tax on the contribution.
From an employer’s perspective, the concessional contributions you need to be aware of include:
- Compulsory super guarantee contributions (SGC)
- Any additional voluntary super contributions you as an employer may make
- Any fund costs paid by you as employer on behalf of an employee in super, such as administration fees and insurance premiums
- Salary sacrifice amounts by the employee
From 1 July 2014, the general concessional contributions cap for those under 50 is $30,000. A higher cap of $35,000 applies to people who are 50 years or over. It is an employee’s own obligation to monitor their concession contribution cap, but any employee would likely be appreciative if you warn them when they approach the limit.
3. How much superannuation does an employer have to pay?
Employers have to pay a superannuation contribution of 9.5 percent of an employee’s ordinary time earnings, and this rate will gradually increase to 12 percent by 2019. Superannuation has to be paid at least every three months into the employee’s nominated superannuation account.
The ATO has a Superannuation guarantee (SG) contributions calculator for you to work out your obligations.
Checklist: salary or wages and ordinary time earnings: This ATO page has a checklist that will help you identify what payments are considered salary or wages and whether they are considered part of ordinary time earnings (OTE) for super guarantee purposes.
Maximum super contribution base: When you are calculating contributions, you may need to take into account the maximum super contribution base, which is used to determine the maximum limit on any individual employee’s earnings base for each quarter of any financial year. You do not have to provide the minimum support for the part of earnings above this limit.
Maximum earnings base per quarter
4. When to pay super
You have to pay super for eligible employees at least four times a year by the quarterly cut-off date. If you use a clearing house, a payment is counted as being paid when the fund receives it, not when the clearing house receives it (unless you use the Small Business Superannuation Clearing House — see more later).
|Quarter||Period||Payment cut-off date|
|1||1 July – 30 September||28 October|
|2||1 October – 31 December||28 January|
|3||1 January – 31 March||28 April|
|4||1 April – 30 June||28 July|
5. What an employer must do if they haven’t met their obligations
If you don’t pay your SG obligations on time, the super guarantee charge (SGC) is triggered and as an employer, you have to lodge a Superannuation guarantee charge statement quarterly and pay a super guarantee charge to the ATO.
These are the circumstances when you will have to lodge the SGC statement:
- If you don’t pay the right amount of super contributions for your employee; this is called a super guarantee shortfall
- If you don’t pay super contributions by the quarterly cut-off date for payment
- If you don’t pay super to your employee’s chosen super fund
The super guarantee charge is the total of the super guarantee shortfall amounts plus interest at 10% per year and an administration fee of $20 per employee per quarter. Also, you will lose the tax deduction your business would normally get because late super contributions and the super guarantee charge are not tax deductible.
6. What solutions are available to meet super processing needs?
There are numerous service providers offering solutions including payroll companies.
If you’re an MYOB AccountRight subscriber then you can use the Set up Pay Superannuation facility to make super payments directly from AccountRight, meet your employee super obligations in a flash and always stay on top of government changes, such as the imminent introduction of SuperStream.
Know your obligations, keep on top of them and seek advice if you need it. A good system will save you time, effort and money by safeguarding your deductions.
The information provided here is of a general nature for Australians and should not be your only source of information. Please consult an experienced and registered tax agent as each small business’s circumstance will vary.