How much superannuation do you have to pay?

 

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The minimum | Penalties | Records to keep | Reportable contributions

We are living longer, and this fact has concerned governments and financial legislators for years – because one outcome of increased longevity is that people spend more time in retirement compared to the time they spent as taxpaying workers. So back in 1992, the government (concerned about the growing queue of future retirees with their hand out for a government-funded pension) introduced a scheme that would make contributing to a superannuation fund compulsory.

The Superannuation Guarantee legislation has been through many legislative changes since then, but still serves to ensure every worker has something put aside for retirement.

As an employer, your business needs to pay superannuation for your staff, on top of their salary. Most employees will be covered by the Superannuation Guarantee (SG) law, whether full-time, part-time or casual, and even contractors in most cases. The other eligibility factors are that staff are aged 18 to 70 and are paid, before tax, $450 or more per month (the age limit will increase to 75 by 2013). You are free to contribute for employees not within this scope if you choose.

The minimum
The minimum amount required is 9% of each eligible employee's total earnings, and needs to be paid into any complying super fund at least once a quarter (before the cut-off dates of January 28, April 28, July 28 and October 28), although you can pay more often if that suits. The minimum will also increase in increments up to 12% by 2019.

Every such contribution you make for staff is tax deductible (although you've got to meet those deadlines or be charged a penalty for missing them and miss out on a tax deduction – see 'Penalties' below).

It is mandatory to offer employees a 'choice of fund'. Employees will need to nominate which super fund or retirement savings account they want payments made to, but if they don't you can choose a fund on their behalf. In either case you need to be certain the fund has 'complying' status from the Australian Prudential Regulatory Authority (APRA), and the employee (or their fund) will need to show you the fund's 'letter of compliance'. You're required to pass on to the super fund the staff member's details, including tax file number, and start paying into the fund within two months of a new employee starting work.

The earnings that the compulsory 9% is calculated on (called the 'earnings base' by the Tax Office) must include remuneration for normal hours plus any allowances, commissions (including sales commissions), shift and leave loadings – but not dividends or bonuses, or basically nothing that is not related to performance.

Penalties
Not meeting your compulsory SG obligations brings with it a penalty, called the superannuation guarantee charge. This is composed of the amount of the unpaid super contribution plus an administrative penalty and some interest. Payments generally go to the employees who missed out.

The super guarantee is regulated by keeping an eye on the amounts that go into super on a quarterly basis, so an actual shortfall of payment or even missing a deadline will show up as failing to meet SG obligations.

If you ever incur a superannuation guarantee charge, you also have to keep records of how you calculated the amounts shown in your quarterly superannuation guarantee charge statement. A penalty of up to $3,300 for an individual and $16,500 for a corporation applies for failing to keep records.

To make sure you don't do it again, salt is rubbed into this wound by disallowing the whole of the charge as a tax deduction – even after you make the late payment – which means you will miss out on a sizeable deduction (the missed super contribution) that you would have otherwise been able to claim.

Records to keep
A few records need to be kept of course – the amount of super paid for each employee, proof that you offered a choice of fund, receipts or some evidence that you have made contributions to a super fund, and a copy of the information an employee provided you about their fund.

There are many instances where an employee negotiates to have more than the SG put into a fund – for example as part of a package via a salary sacrifice arrangement, or some employees may like bonuses paid into their super fund rather than their bank.

They are all however 'reportable contributions' under reporting obligations. Super contributions that are made due to an employee having a 'capacity to influence' amounts paid to super (such as mentioned above), as well as the compulsory contributions, need to be shown on an employee's payment summary.

Reportable contributions
Reportable contributions are not included in the employee's taxable income, but need to be shown on payment summaries in the same way as reportable fringe benefits. This is because these amounts may push a person's eligibility over the threshold for some tax concessions, or they may be counted towards some income tests (and are generally factored into 'adjusted taxable income') for various government benefits.

The rationale is that contributions to super, or fringe benefits, which are not taxed in the hands of the employee, still benefit the recipient. The fact that someone can afford to not receive this money as direct (cash-in-bank) income should not enable them to get access to another benefit. These include dependant and mature age tax offsets, the Medicare levy surcharge threshold and super co-contributions.

For example, say one of your staff, Dan, has a dependant spouse Prue who is on unpaid leave. Dan wants to claim the dependant spouse tax offset for Prue in his tax return, and the offset has an eligibility income threshold of $9,254 to be eligible. Prue has no wage for that year, but her employer pays $10,000 in super contributions during that same time. She may have a taxable income of zero, but an 'adjusted' income (due to the reportable super contributions) of $10,000, rendering Dan ineligible to claim the tax offset as this is over the threshold.

Reviewed June 21, 2012

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