Over the past few months there has been a great deal of focus on large companies not paying their employees correctly. I thought it a timely reminder to take a deeper look into an area that we see many small businesses fall short when it comes to employee entitlements, and that is super.
Super is one of those business costs that is easy to let slide as the onus is completely on the business owner to get it paid by the due date. There aren’t any formal reminders and if you miss a payment there aren’t any formal follow-ups. It is totally a case of out of sight out of mind. When there are so many other demands when it comes to running a business, it is easy to see why paying super isn’t a priority BUT it should be. Here’s why and what you need to know.
Why is paying super a priority?
Paying super is a priority as there are serious financial consequences that even extend beyond your business if you don’t. The Australian Tax Office (ATO) has it within their powers to recover super that should have been paid by an employer from directors personally. This means that if the employer has equity in their home and insufficient liquid assets then the ATO can sell their home. Very scary indeed!!
The penalties however start long before the ATO starts recovery action against a director for the non-payment of super, being that:
- You can’t claim a tax deduction for super that is paid late
- Late payments of super must be notified to the ATO and attract a super guarantee charge, which is made up of:
- The amount of super that should have been paid (i.e. the shortfall amount)
- Interest charge
- An administration fee of $20 per quarter per employee
You can find the due dates for super contributions on the Accounting Heart 12 Month Planner.
What you need to know
As a business owner there are a few key things that you need to know about super. We have summarised these for you below, with the resources you will need to meet your obligations:
1. Super is payable where you have an employee who is 18 years or older and earns more than $450 per month. This includes you if you are operating your business through a company, even if you don’t have any other employees.
2. In certain circumstances a contractor can be considered an employee for super purposes. The ATO has a handy tool for determining if super needs to be paid on contractor payments. We have also produced a YouTube video on the topic, which illustrates our first-hand experience where a multinational employer got it wrong.
3. Super is compulsory payment on behalf of employees, payable at 9.5% on ordinary times earnings.
4. You need to provide your employees with a Super Choice Form at the time you engage them. This form provides you with the details of their super fund so that you can correctly direct their payments You need to include a default fund on the form in the event that your employee does not nominate a super fund.
5. Under the newly introduced Single Touch Payroll reporting regime, super is now required to be reported to the ATO each time you pay your employees (yourself included if you run your business through a company). You will need to choose a third party payroll software provider (e.g., Xero, MYOB) through which to do the reporting. There are no direct reporting options.
6. Super contributions are required to be paid to a Superannuation Clearing House and not directly to the super fund. You simply make one payment for all employees to the clearing house. The clearing house then makes the payments to the various super funds. If you process your payroll electronically (eg through Xero or MYOB) you will have access to a super clearing house through the app, although additional charges may apply. The ATO has a free option which you can access here. Some super funds also have a clearing house, which you can check directly with them.
7. Super payments must be allocated to an employee’s account 28 days after the end of a quarter to qualify for a tax deduction. This means that you need to process and pay super several days beforehand to ensure that the funds are received before the deadline. The relevant dates are:
- 28 July
- 28 October
- 28 January
- 28 April
8. If super is paid late you will need to lodge and pay the Super Guarantee Charge.
How can we help?
At Accounting Heart, we understand finances may not be your strong point. So, you’re invited to book a FREE Discovery Call where we can find out what you need and how we can help.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this summary. Readers of this summary should not act or refrain from acting in reliance upon any information contained herein, and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.