The superannuation guarantee (SG) regime was established under the Superannuation Guarantee (Administration) Act 1992 (SGAA).
The regime broadly requires employers to make superannuation contributions for their employees that will be at least the minimum level of superannuation support set out in the legislation. However, the employer is only required to contribute superannuation for any employee under the SG regime up to the maximum contribution base. But for those employees who are lucky (or unlucky) enough to have multiple employers (for example, company executives and doctors), these employees will have two or more employers who are each obliged to contribute superannuation up to the maximum contribution base, because the maximum contribution base is assessed on a per employer-group basis.
The SGAA provides that ‘employee’ and ‘employer’ have their ordinary meanings.
Technically, the SGAA does not place a positive obligation on an employer to pay superannuation contributions on behalf of an employee. However, where an employer fails to pay the minimum level of superannuation contributions on behalf of an employee (9.5 per cent for the 2018 financial year), which is measured on a quarterly basis, the employer will be liable to pay the SG charge on their SG shortfall.
What is the maximum contribution base?
Before describing the maximum contribution base, we briefly outline the SG shortfall aspects in the SG regime. Broadly, section 19 of the SGAA provides a formula to work out whether an employer has an SG shortfall for an employee, in respect of a quarter, by working out an employee’s ‘quarterly salary or wages base’ and multiplying this by the SG charge percentage, which is 9.5 per cent for 2017/18, divided by 100.
An employer’s ‘quarterly salary or wages base’ includes the employee’s ordinary time earnings (OTE), which is defined under section 6 of the SGAA to include both “earnings in respect of ordinary hours of work” and “earnings consisting of over-award payments, shift-loading or commission”, however, if both the amounts are greater than the maximum contribution base, the employee’s OTE is calculated by reference to the maximum contribution base. Hence, an employer’s SG obligations to an employee do not exceed the maximum contribution base. This, of course, does not prevent an employer from paying more than the maximum contribution base.
The maximum contribution base is subject to yearly indexation, which takes into account movements in full time adult average weekly OTE.
In calculating an employee’s OTE, both directors’ fees and bonuses are included. In respect of bonuses, the Administrative Appeals Tribunal determined in Prushka Fast Debt Recovery Pty Ltd v Commissioner of Taxation [2008] AATA 762 that “bonuses paid to employees of Prushka were paid in respect of ordinary hours of work by those employees. Therefore, the bonuses must form part of those employees’ salary and wages. It follows that the bonuses must be taken into account when calculating the superannuation guarantee contribution.”
Now, how does the maximum contribution base work?
To illustrate how the maximum contribution base works, take for example the 2018 financial year. For this year, the maximum contribution base is $52,760 per quarter. Hence, for an employee who receives more than $52,760 per quarter in total OTE, the employer only needs to pay SG contributions calculated in reference to $52,760. The SG percentage in this income year is 9.5 per cent. Hence, the maximum SG contribution an employer is obliged to contribute would be $5012.20 (that is, $52,760 x 9.5%) to their employee’s superannuation fund.
Take the following example, Ruby, in 2017/18, is on the board of both Emerald Ltd and Sapphire Pty Ltd. Emerald and Sapphire pay Ruby salaries (including bonuses) of $300,000 and $200,000 respectively. The companies are entirely unrelated. For SG purposes, Ruby has salaries of $75,000 and $50,000 per quarter respectively. The maximum contribution base is $52,760 per quarter in 2017/18. Emerald would be required to contribute at least $5012.20 (that is, $52,760 x 9.5%) to Ruby’s superannuation fund since her quarterly salary exceeds $52,760 per quarter. Sapphire would only be required to contribute at least $4750 ($50,000 x 9.5%). However, Emerald and Sapphire are thinking of merging. Thus, if this merger proceeds, and assuming Ruby’s total salary becomes $500,000, the new company would only be obliged to pay SG in reference to the maximum contribution base and Ruby would only be entitled to $5012.20.
