The ATO has been concerned for some time about the non-compliance of employers regarding their superannuation guarantee obligations. Many employers may not understand what those obligations are and the unfortunate reality for some is they may have been ill-advised.
As trusted advisers to employers, or as super experts, a great opportunity exists to assist employers, especially small businesses. Below are a few topics that can be raised to instigate those discussions.
Basics of superannuation guarantee
Super contributions are currently calculated on the basis of 9.5 per cent of ordinary time earnings (OTE). Contributions must be deposited into the relevant superannuation fund by the 28th day after the end of the quarter (not simply made or sent by the 28th). Failure of payments to reach the fund by this day result in a loss of tax deductibility, a recalculation of the amount to 9.5 per cent of salary and wages rather than OTE, penalties and interest. The commissioner of taxation has limited (if any) flexibility to provide relief for employers who make late payments, regardless of the circumstances.
The ATO’s “Superannuation Guarantee Ruling (SGR) 2009/2” discusses this issue.
Make sure employers are reminded of their super guarantee obligations and the need for timely payments as the consequences can be severe with little relief available.
Many employers are of the mistaken belief that classifying an employee as a contractor negates any obligation they may have to make super guarantee payments for them. While some genuine contractors may be excluded from the super guarantee regime, this is often not the case. The definition of employee for super guarantee purposes can be more extensive than that applied for other purposes. Therefore, not only can you not call a person a contractor to avoid the super guarantee, the definition of employee for these purposes can also include arrangements that may otherwise appear to be a contractor relationship. SGR 2005/1 provides guidance on when an individual is an employee for super guarantee purposes.
Check the arrangements around so-called contractors to ensure they are not employees for superannuation guarantee purposes.
Using clearing houses
Some employers use the services of a clearing house to assist with the processing of super guarantee contributions. These can be useful, but bear in mind an employer’s obligation for payment of super guarantee amounts for employees is not satisfied until the payments reach the relevant super fund.
Employers should check service agreements with the clearing house and/or payroll provider to check the provider’s obligations to make on-payments to the super funds. Make allowances for time frames accordingly.
Small Business Superannuation Clearing House
This free online service is administered by the ATO and is available to all small businesses in Australia with 19 or fewer employees. It provides an efficient way for employers to make payments for their employees and is the only clearing house employers can use whereby their obligations for super guarantee payments are met by payment to the clearing house rather than the actual super fund.
Check to see if employers are eligible for and would benefit from using the free Small Business Superannuation Clearing House.
All employers will soon need to make contributions for their employees in a manner that complies with the new data and payment standard SuperStream. All contributions and associated data will need to be made in an electronic format that complies with the standard. The timing around compliance depends on the size of the business. Medium and large employers have been given some additional time by the ATO until 31 October 2015. Small businesses must be complying by 30 June 2016. Employers need to be collecting relevant data from employees, including an electronic service address where contributions are to be made to an SMSF. If an employee fails to provide this information, employers will need to make super guarantee contributions to a default fund in order to meet their own obligations. Some contributions between an SMSF and a related-party business may be exempt from SuperStream compliance.
The ATO has provided extensive guidance on its website, www.ato.gov.au/super/superstream.
Check arrangements that employers have made in preparation or are currently using for compliance with SuperStream.
This is not an exhaustive list of the requirements for employers around the super guarantee, but rather provides some easy points with which to engage employer clients on their super obligations.