The ATO recently released a report that estimated that employers had underpaid compulsory superannuation guarantee (SG) contributions by a staggering $2.85 billion.
As a result the Government will provide the ATO with additional funding for a Superannuation Guarantee Taskforce to crackdown on employer non-compliance.
Although $2.85 billion seems large, it only represents about a 5.2 percent shortfall in compulsory employer super payments. Hence about 95 percent of employers are doing the right thing.
Through its compliance activities, the ATO identified some key factors which may be contributing to this super guarantee gap. They include:
- non-compliance is reported more often about employers in accommodation and food services, construction, manufacturing and retail trade industries,
- drivers of non-compliance include poor cash flow management by employers, poor record keeping and low levels of business experience, and
- insolvency among employers means that debts are sometimes difficult to collect on behalf of employees. Around 50 per cent of collectable super guarantee charge debt is subject to insolvency.
The Government plans to introduce a package of measures designed to give the ATO near real-time visibility over SG compliance by employers. It includes measures to:
- require super funds to report contributions received more frequently, at least monthly, to the ATO,
- roll out Single Touch Payroll (STP). Employers with 20 or more employees will transition to STP from 1 July 2018 with smaller employers (with 19 or less employees) moving to STP from 1 July 2019. To align payroll functions with regular reporting of taxation and super obligations,
- improve the effectiveness of the ATO’s recovery powers, and
- give the ATO the ability to seek court-ordered penalties in the most severe cases of non-payment.
These measures are on top of its proposed legislation to apply from 1 July 2018 to ensure salary sacrifice contributions do not reduce an employer’s SG obligation.
Super guarantee 101
The ATO’s super guarantee gap would indicate that some employers are not aware, or are ignorant of, the SG rules and their obligations.
The following are some basic SG rules for employers:
- if you pay an employee $450 or more (before tax) in a calendar month, you have to pay SG in addition to their wages,
- if your employee is under 18 or is a private or domestic worker, such as a nanny, they must also work for more than 30 hours per week to qualify, and
- you may need to pay super to your contractors, even if they have an ABN.
Furthermore, employers need to pay SG regardless of whether the employee:
- is full-time, part-time or casual,
- receives a super pension or annuity while still working – including those who qualify for the transition-to-retirement pension,
- is a temporary resident – when they leave Australia, they can claim the payments you made through a departing Australia superannuation payment, although some foreign executives who hold certain visas may be exempt from SG,
- is a company director, and
- is a family member working in your business – provided they are eligible for SG.
The minimum super employers must pay each quarter for each eligible employee is 9.5 percent of their ordinary time earnings (OTE). OTE is usually the amount your employee earns for their ordinary hours of work. It includes things like commissions, shift loadings and allowances, but not overtime payments.
Unfortunately, it is not unusual for businesses reporting systems to misclaculate OTE, particularly with the increasing array of employee working arrangements.
Employers do not need to pay super above the maximum contributions base, which for the 2018 financial year is $52,760 per quarter. Where an employee earns more than this amount, their employer does not need pay SG on their earnings above this limit.
With increased ATO resources allocated to employer SG compliance, it is now imperative that businesses with employees are vigilant in ensuring that their SG obligations are met.
For some employers, it may be worthwhile to engage their accountant or business adviser to carry out an external review of their SG obligations. If you get it wrong, the penalties can be quite severe.
In addition to the SG charge, which imposes nominal interest and an administrative charge on top of the SG shortfall, the ATO can impose additional penalties of up to 200 percent of the SG charge.