Superannuation has been around a while now.
The earliest instances can actually be traced back to Federation in 1900. If you’re really keen on the history you can check it out here.
It only became mandatory in 1992 as a strategy to reduce the pension liabilities on the public purse. Whether it is achieving this is the subject of an interesting debate. Check this out from The Australian for a primer
Whatever the views on super are, the fact remains it’s mandatory and I can’t see that ever changing. So let’s get into it and what Super means for you and your small business.
The Superannuation Rules
Employees are entitled to superannuation on their ordinary times earnings. That’s a long and fancy term for income. You can get the nitty gritty here, but essentially it’s their salary.
The current rate of super is 10%. It is supposed to increase slowly to 12% over the next couple of years which will have interesting impacts on wage growth and business performance (i.e instead of getting higher wages, those wage increases will need to go to super, because business isn’t making more money to pay higher wages and super).
You need to remember it’s not your money. It’s your employee’s.
Don’t think of super as an extra payment. It’s actually the employees wages, but instead of paying it in the payroll you’re saving it for them and putting it into a special account for them. So when you’re hiring people don’t look at the award $ per hour or salary number, look at total remuneration.
That is the number you need to be using when doing your costing/pricing. Employee remuneration is in fact a combination of 3 amounts;
1) the cash you transfer them each payrun;
2) the tax you withhold and pay to the ATO on your activity statements (called Pay As You Go Withholding - PAYGW) and
3) superannuation which you pay to the super fund.
Now if you can't pay each of these 3 things in full each pay run you most likely have a cash flow problem that needs to be remedied ASAP.
When an employee gets the gig at your joint you have an obligation to provide them with a Super Choice Form which you can get here. The employee should complete this form along with their Tax File Number Declaration and other HR documents (next of kin, address etc) and return it to you lickity split so you can pay them.
If they don’t return the super choice form or don’t have a fund they want you to contribute to you still need to pay their super. But where to?
A Default Fund or Stapled Super Fund
As an employer you need to establish a “default fund” to deposit contributions for employees who don’t give you their fund to deposit to and don't have a "stapled super fund".
Stapled super funds are a new requirement going live from 1 November 2021. The funds follow employees around when the move jobs. So from 1 November you need to search to see if the employee has a stapled fund before you contribute to a default fund.
It’s important that even if the employee doesn’t tell you where to pay the super to, that you still pay it.
Them not giving you a fund is not a reason for not paying it. This excuse will not wash with the ATO at all.
This has been in for a few years. Your payroll software should be handling it. But essentially you need to submit some data electronically to the super funds. It tells them who the contribution is for, the amount and what type of contribution it is. It’s designed to speed up the processing of contributions at the super fund level.
Single Touch Payroll (STP)
STP is in place for all employees. STP transmits data to the Australian Taxation Office at each payrun. So if you pay staff weekly, data is being sent to the ATO each week telling them the people being paid, how much, how much tax you withheld, and how much super.
The ATO then cross check this to your Activity Statements, Tax Returns and Payment Summaries. They can also match it to your Super Stream data to ensure the super is being paid on time and to pre-fill your tax returns at year end. This is why employees now don't receive "Payment Summaries" aka Group Certificates.
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How to Calculate Superannuation
Superannuation is payable to “employees” on ordinary times earnings where that employee has ordinary times earnings of $450 or more in any given month (e.g If any employee earns $400 in one month no super is payable, however if they earn $451 in the next month you need to pay 10% * $451 for that month, not 10% * $451-$450).
Why the inverted commas on employees?
Because employees for super purposes are much broader than employees than you think of as an employee.
An employee for super purposes includes contractors who are paid mainly for their time and personal labour and skills. This is an integrity measure to stop employers using a technical loop hole and making everyone “contractors” rather than employees. If you’re unsure if you need to pay super you can use the ATO Decision Tool. So just because they have an ABN, does not mean they are not entitled to superannuation.
When are Super payments due?
Super is required to be paid to a complying superannuation fund no later than 28 days after the end of a quarter, you can get all the details here
How Do You Make Superannuation Payments?
If you use an online accounting system like Xero or Quickbooks Online, you can set it up so those systems distribute the cash to the relevant super funds for each of your employees. But you do need to authorise the payment each quarter. In Xero for example, once it’s set up, you go to;
Payroll - > Superannuation -> Add Super Payment.
Then select the super you are going to pay based on the dates of the payruns.
Once you’ve selected them all, click “submit for approval” down the bottom. It’ll send you a code via text message. You then enter that code and Xero will then take that cash out of your bank account in the next day or so and pay it to the super fund.
As I said there are a couple of things to do to set this up initially. You can find the Xero steps here
If you’re not using one of these systems you can use Use the ATO small business clearing house (for free).
Income Tax Implications
Super is only deductible for income tax purposes when it’s paid on time i.e it’s on a cash basis.
So if you want to reduce the “cost” of super to you, pay it on time.
If you’re a small business in a company, you’ll save 25%. This is a significant saving, if you’re super bill for the year is $50,000, this means you’ll save income tax of $12,500. That’s nothing to sneeze at. So if you want to pay less super. Pay it on time. But what if you can't?
If you pay it late (or not at all) it’s not tax deductible. Ever. So even when you do finally pay it (doesn’t matter if its 1 day or 100 days) you miss out on the tax deduction. That’s sure to take the jam out of your doughnut and begin the cash flow spiral of doom.
If you pay super late, it’s not tax deductible.
Superannuation Guarantee Charge Forms
If you pay it late, you’re also required to submit a Superannuation Guarantee Charge form with the ATO. You can get a copy here. You also need to pay “lost earnings” and an ATO admin fee of $20 per employee which can really add up.
Director Personal Liabilities
Unpaid super can be a personal liability of the director’s of a company. This means the ATO can make you personally liable for these amounts even if the company goes into administration or liquidation, depending on the timing of you submitting forms/paying the super. We wrote more about this here. And as mentioned above, you won’t get an income tax deduction if you have to pay it.
Late Paid Super is a MASSIVE Danger Sign
Don’t ignore this.
One or two late payments may occur in business as you’re waiting on cash flow to come through, but if you’re struggling to pay super each quarter (or not paying it at all) you can’t put your head in the sand.
These amounts need to be paid and aren’t going away. Superannuation is a personal liability of the directors of a business.
If you can’t afford super you need to change your business because it’s in trouble.
You’re not going to magically be able to pay super in the future without changing. Your business is in trouble. It’s happening and it can bury you. Seek help. Seek it now.