How much superannuation to pay
The minimum | Penalties | WorkCover | Reporting obligations | Reportable contributions
We are living longer, and this fact has concerned governments and financial legislators for years – because one outcome of increased longevity is that people spend more time in retirement compared to the time they spend as taxpaying workers.
So back in 1992, the government (concerned about the growing queue of future retirees with their hand out for a government-funded pension) introduced a scheme that would make contributing to a superannuation fund compulsory.
The Superannuation Guarantee legislation has been through many legislative changes since then, but still serves to ensure every worker has something put aside for retirement.
As an employer, your business needs to pay superannuation for your staff, on top of their salary. Most employees will be covered by the Superannuation Guarantee (SG) law, whether full-time, part-time or casual, and even contractors in most cases.
The other eligibility factors are that staff 18 and earn, before tax, $450 or more per month. If a staff member is less than 18, they must work at least 30 hours and earn at least $450 a month to be eligible for SG. You are free to contribute for employees not within this scope if you choose. The upper age limit was abolished from July 1, 2013.
The minimum amount required is 9.5% (as of July 1, 2014) of each eligible employee's total earnings, and needs to be paid into any complying super fund at least once a quarter (before the cut-off dates of January 28, April 28, July 28 and October 28), although you can pay more often if that suits. The minimum will also increase in increments up to 12% by July 2022. Every such contribution you make for staff is tax deductible.
It is mandatory to offer employees a 'choice of fund'. Employees will need to nominate which super fund or retirement savings account they want payments made to, but if they don't you can choose a fund on their behalf. In either case you need to be certain the fund has 'complying' status from the Australian Prudential Regulatory Authority (APRA), and the employee (or their fund) will need to show you the fund's 'letter of compliance'. You're required to pass on to the super fund the staff member's details, including tax file number, and start paying into the fund within two months of a new employee starting work.
The earnings that the compulsory 9.5% is calculated on (called the 'earnings base' by the Tax Office) must include remuneration for normal hours plus any allowances, commissions (including sales commissions), shift and leave loadings – but not dividends or bonuses, or basically nothing that is not related to performance.
The Tax Office has a handy super guarantee calculator that defines what's in an earnings base and what's not, and to help work out how much you will have to put aside for each employee. Also, from July 1, 2010, the federal government introduced a superannuation 'clearing house', or central deposit point for taking SG contributions. But the service is limited to businesses with fewer than 20 employees. See more details here.
Not meeting your compulsory super obligations brings with it a penalty, called the superannuation guarantee charge. This is composed of the amount of the unpaid super contribution plus an administrative penalty and some interest. Payments generally go to the employees who missed out.
The super guarantee is regulated by keeping an eye on the amounts that go into super on a quarterly basis, so an actual shortfall of payment or even missing a deadline will show up as failing to meet super guarantee obligations.
If you ever incur a superannuation guarantee charge, you also have to keep records of how you calculated the amounts shown in your quarterly superannuation guarantee charge statement. A penalty of up to $3,300 for an individual and $16,500 for a corporation applies for failing to keep records.
To make sure you don't do it again, salt is rubbed into this wound by disallowing the whole of the charge as a tax deduction – which means you will miss out on a sizeable deduction (the missed super contribution) that you would have otherwise been able to claim.
And there is another penalty for not meeting the SG obligations. From July 1, 2011, the director penalty regime has been extended to superannuation guarantee amounts, making directors personally liable for their company's failure to pay employee superannuation.
There may be no obligation for you to keep contributing to an employee's super fund while they are away from work on WorkCover. The obligation to contribute to super generally only applies to wages and salary paid while an employee is actually working, however there are some awards, workplace agreements and contracts that specify that employers are required to continue super contributions for a limited period while a claimant is on WorkCover.
A few records need to be kept of course – the amount of super paid for each employee, proof that you offered a choice of fund, receipts or other evidence that you have made contributions to a super fund, and a copy of the information an employee provided you about their fund.
There are many instances where an employee negotiates with their workplace to have more than the super guarantee amount put into a super fund – for example as part of a package via a salary sacrifice arrangement, or some employees may like bonuses paid into their super fund rather than their bank account.
They are all however 'reportable contributions' under the reporting obligations. Super contributions that are made due to an employee having a 'capacity to influence' amounts paid to super (such as via salary sacrifice), as well as the compulsory contributions, need to be shown on an employee's payment summary.
If you make super contributions under an effective salary sacrifice arrangement or extra super contributions to a super fund for an employee, you may need to report those contributions ( called reportable employer superannuation contributions, or RESCs) on your employee's payment summary.
RESCs are not included in your employee's assessable income. However:
- you must report them to the Tax Office as part of your payment summary reporting
- your employee must report them in their income tax return.
Reportable employer superannuation contributions affect a range of government entitlements and obligations for individuals. You must keep records in enough detail to:
- report each employee's reportable employer superannuation contributions in your payroll, reporting and record keeping systems
- provide accurate information to your employees if they ask about their reportable employer superannuation contributions.
Reportable contributions are not included in the employee's taxable income, but need to be shown on payment summaries in the same way as reportable fringe benefits. This is because these amounts may push a person's eligibility over the threshold for some tax concessions, or they may be counted towards some income tests (and are generally factored into 'adjusted taxable income') for various government benefits.
The rationale is that contributions to super, or fringe benefits, which are not taxed in the hands of the employee, still benefit the recipient. The fact that someone can afford to not receive this money as direct (cash-in-bank) income should not enable them to get access to another benefit. These include dependant and mature age tax offsets, the Medicare levy surcharge threshold and super co-contributions.
For example, say one of your staff, Dan, has a dependent spouse Prue who is on unpaid leave. Dan wants to claim the dependent spouse tax offset for Prue in his tax return, and the offset has an eligibility income threshold of $9,254 to be eligible. Prue has no wage for that year, but her employer pays $10,000 in super contributions during that same time. She may have a taxable income of zero, but an 'adjusted' income (due to the reportable super contributions) of $10,000, rendering Dan ineligible to claim the tax offset as this is over the threshold.
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