The super guarantee (SG) penalty regime has been described by many, including myself, as draconian. It does not distinguish between an essentially compliant employer trying to do the right thing and a serial offender when it comes to their SG obligations. The SG penalty regime throws the kitchen sink at them both.
If you are late, there is the requirement to prepare an SG charge statement, charge interest from the start of the quarter the late payments relate to, calculate the SG amount using a different earnings base and add a fixed penalty amount, $20, for each employee underpayment. If that was not enough, the whole amount is non-deductible to add salt to the wound.
This is what the law requires and therefore the ATO’s hands are tied, even if you are only one day late. Further penalties of up to 200 per cent can apply (Part 7 penalty) if you lodge your SG charge statement late, but the regulator has the discretion to remit the penalty in part or in full.
With the advent of single-touch payroll, the ATO has more real-time data to undertake compliance activities to detect employers who are not meeting their SG obligations.
The Institute of Public Accountants has received member feedback that ATO compliance activities are unearthing a common problem many small businesses are encountering as a result of these inquiries. Unfortunately, this story does not end well. These compliance activities can go back many years, causing further angst for employers caught in the compliance nightmare.
Many small businesses schedule SG payments in their payroll systems before the due date, which is 28 days after the end of the previous quarter. Many use clearing houses to facilitate the movement of funds into each employee’s super fund and here lies the underlying issue. The ATO ignores the date the small business makes the payment to the clearing house. Instead, it looks at when the clearing house has made the payment into the employee’s super fund.
The ATO website makes this very clear and an extract appears below:
“Your employee’s super contribution is only considered ‘paid’ on the date it’s received by the super fund. If you are using a clearing house, payments made to the clearing house that are not processed, or do not reach the super fund until after the payment due date, are considered late payments.
Processing times vary between clearing houses. You must check the processing timeframes required by your clearing house to ensure your payments will be processed before the payment due dates.”
Despite the numerous ATO reminders, many small businesses are ignorant of this requirement and consider they have met their obligations when the funds have left their bank account. The only exception is if the employer uses the ATO clearing house. If this is the case, then the date the funds are received by the clearing house becomes the operative date. The draconian SG penalty regime comes into full swing, penalising compliant small businesses as if they are serial offenders.
While the government has indicate the SG penalty regime will be reformed under the proposed pay day super (PDS) model, there is no relief for small business entities anytime soon as PDS is proposed to commence on 1 July 2026.
More and more small businesses will come under the radar as the ATO looks backwards on SG payment history. What we need is an interim legislative fix, as waiting for the SG penalty regime to be reformed under PDS is a lifetime away. An interim legislative fix allowing the regulator to be given more discretion on how to apply the penalty provisions for employers trying to do the right thing is urgently needed.
Tony Greco is technical policy general manager at the Institute of Public Accountants.
