As an employer, you are required to pay compulsory superannuation to provide for the retirement of your employees and some contractors. The minimum super guarantee payable is currently 9.5% of an employee’s ordinary time earnings (i.e. their ordinary hours of work, including commissions, shift loadings and allowances but not overtime payments).
The super guarantee must be paid at least four times during the year, on the 28th day of the month following the end of each quarter (e.g. super accrued for the July to September 2015 quarter must be paid to the employee’s superannuation fund no later than 28th October 2015).
Failing to pay the superannuation by the due date will result in your business being denied a deduction for that expense. This can significantly increase the tax liability of your business. Furthermore, failing to pay by the due date requires you to submit documentation by no later than 28 days after the due date for the late paid superannuation with an admin fee and interest on the superannuation components. If you are severely behind in the superannuation, the ATO can come after you personally for the unpaid superannuation.
There are certain circumstances where you are NOT liable to pay super on an employee’s wages, these being:
- If the employee earns less that $450 in a calendar month;
- If an employee is under 18 years old and works less than 30 hours per week;
- If the employee is a private or domestic work (e.g. a nanny, housekeeper or carer) and works less than 30 hours per week;
- Non-resident employees you pay for their work outside Australia;
- Some foreign executives who hold certain visa or entry permits;
- Employees under the Community Development Employment Program;
- Members of the army, naval or air force reserve for work carried out in that role;
- Employees temporarily working in Australia who are covered by a bilateral super agreement.
You have to pay super guarantee for contractors (even those who have quoted an ABN) if:
- Their contract is wholly or principally (i.e. more than half the dollar value of the contract) is for their labour;
- For their personal labour and skills, and not to achieve a result. This may include physical labour, mental effort or artistic effort;
- To perform the contract work personally (i.e. they must not delegate the work to someone else).
Excess Concessional Contributions Assessments
The contributions made into superannuation are subject to certain annual contribution caps. These are dependent on the age of the member and also the type of contributions being made. Exceeding these caps can result in significant tax consequences, as the additional contribution amounts are taxed at the top marginal tax rate, currently 49%.
The most common instance where we see employees incur an Excess Concessional Contributions Assessment is where their employer has failed to make their compulsory superannuation guarantee contributions for several years and then pays the outstanding amounts into an employee’s superannuation fund in one lump sum. This can result in the employee having to pay the excess contributions tax. Where the contributions actually related to a prior year, the employee can apply to the tax office to have these contributions “reallocated” to the year to which they related. Generally, the employee is required to pay the additional tax up front to the tax office and then if their application for reallocation of the contributions is successful, the ATO will refund the tax amounts. This process can take some time and in some instances our clients have waited 6 months for the additional tax amounts to be refunded to them. This can be a significant burden for the taxpayer, given that they have no control over when their employer pays their superannuation or if they pay it on time.
It is therefore important that employers are paying their employee superannuation contributions in a timely manner. Employees should also be checking their superannuation accounts regularly and following up with their employer if contributions have not been made.
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