Superannuation obligations and you

Big brother is watching...

With the roll-out of Single Touch Payroll (STP) now finalised for many employers, it’s never been a more important time to ensure that you’re complying with your employee obligations.

The Australian Taxation Office (ATO) now have more information than ever before including detailed records of payments made to employees in real time. Given we consistently observe that the December quarter is where the most breaches occur in respect of Superannuation Guarantee (SG), it’s important to get processes in place now so you don’t miss the cut for making superannuation contributions coming off the back of the silly season. All SG payments accrued for wages paid in the December quarter are due by 28 January.
 

Made a late superannuation payment?

If you make a late payment (or not at all), you are obligated to let the ATO know by lodging a Superannuation Guarantee Charge (SGC) statement noting the details of each late payment made for each employee. This statement is due one month after the respective quarter SG was due.

Consequences for employers not making their superannuation contributions for employees on time include:
 
  • Paying 9.5% superannuation on all wages, not just ordinary earnings. If payment is late, under the SGC, the shortfall 9.5% superannuation payment reverts to being payable on all wages, not just Ordinarily Times Earnings (OTE). Overtime is an example of wages not ordinarily subject to super but captured if paid late.
  • Loss of tax deductions on late contribution payments. To be eligible to claim a deduction the payments must be made on time. If a payment is made after a due date, be it a day late or longer, and an employer intends to use the late payments made to reduce its SGC liability, a tax deduction is generally denied.
  • Additional costs also not tax deductible. The subsequent charge will be paid directly to the ATO together with nominal interest and administration fees - none of which are tax deductible in respect of the amount originally due.  The administration fee due is $20 per late quarter per employee; and the interest (currently 10% per annum for lost earnings in that employees super fund) will accrue from the start of the relevant quarter until the SGC statement is lodged if the form is lodged later than 28 days after the original due date for the SG.
  • Bypassing the SGC may result in having to pay the superannuation again and significant penalties. Employers paying employees superannuation late and directly into the relevant superannuation funds without completing SGC statements and electing to apply the amounts paid against the SGC liability, could result in the business having to pay the superannuation again. In addition, a Part 7 penalty of up to 200% of the SGC liability can be imposed. Importantly, there is no time limit on the period of review for SGC obligations
  • Directors of companies can also be personally liable for any unpaid SGC. A Director Penalty Notice (DPN) can be issued to individual directors for unpaid SGC. This can also include unpaid PAYG withholding tax.
     

Who is SG payable for?

SG is payable on OTE for an individual who is considered an employee as defined under the Superannuation Guarantee Administration Act 1992 (SGAA). While this definition captures common law employees, it also includes other individuals as employees for SG purposes, including (but not limited to) directors of companies and contractors hired wholly or principally for labour - this is explained in SGR 2005/1. If you use contractors, then consider reviewing their arrangements, as contractor payments could be subject to SG.

The ATO review employers in respect of their contractors when they suspect (or are tipped off) those contractors should be captured as employees for the purposes of the SGAA. This can lead to other breaches of employer obligations such as payroll tax, fringe benefits tax and work-cover - depending on the nature of the arrangement with the worker. Given these agencies readily share information, you can bet that when one investigates, others will follow.

In a recent AAT case (Probin v FC of T [2019] AATA 4597) it was concluded a worker was considered an employee of the taxpayer at common law and should have made SG payments on behalf of the worker. The taxpayer had treated this particular worker as an independent contractor (and not an employee for SGAA purposes) even though the taxpayer/employer determined what work was to be performed by the worker, including its time and location, paid the worker a flat hourly rate, and the worker could not delegate the work – all indicators of a common law employment relationship.

A reminder that even where an employer labels a worker a contractor, and refers to their contractor agreement, it doesn’t necessarily make them a contractor at law and falls outside of the definition of an employee for SGAA purposes. This is not clear-cut in some circumstances and specialist advice should be sought if the arrangement is unclear.
 

How to calculate the amount of SG payable

Superannuation guarantee is required to be paid on Ordinary Times Earnings (OTE). SGR 2009/2 reflects the ATO’s view on OTE but broadly OTE is captured as payments made to an employee (as defined under the SGAA) for their ordinary hours of work (in whatever form that takes).

Payment constituting OTE can become complicated where lump sum payments made include:
 
  • Leave loading
  • Time in lieu
  • Rosters days off
As a rule, the underlying nature of that payment and what it is paid in respect of will determine whether it is OTE and therefore subject to SG. This often requires a thorough analysis of employment or labour contracts and/or award agreements.
 

Additional key points to note regarding your superannuation obligations

  • Superannuation obligations will apply even where the employee is a related party to the business (i.e. there is no discretion for the employee to ‘opt-out’ - opting-out may only apply in the case of high income earners with multiple employers). 
  • The onus to make SG payments will still fall on the employer, even if the employee has not provided superannuation information. Employers should have a default superannuation fund ready ahead of time, to ensure they are prepared.
  • The obligation to pay SG will apply even if an employee has made separate personal superannuation contributions, has a second job, or is drawing a pension. 
  • As from 1 January 2020 employers cannot count salary sacrificed contributions towards satisfying the SG obligations. Note:  9.5% SG will be payable on an employee’s OTE base.
  • There is a maximum contribution base on which SG applies for an employee per quarter. The income amount for 2019-2020 is $55,270 per quarter – indexed annually. 
  • Notwithstanding ATO legal requirements under SG, employers must meet the terms of any employment contracts/awards that require greater contributions.
      

Current ATO activity

We have seen prompt notices being issued to employers by the ATO where SG has been paid late, and no SGC statement lodged. If the SGC statement is not lodged, employers run the risk of increased ATO scrutiny and significant non-deductible back payments of SGC if the late payment (or failure to make payment) was made many months or even years after the due date.  

As a general comment, the ATO previously may not have known SG was paid late until up to a year later (or not known at all). With the introduction of STP and together with SuperStream, where employers haven’t paid their SG obligations, it can be assumed now that the ATO will know in a timely fashion.

Alongside the black economy taskforce programs and a 42% increase in the number of ‘tipoffs’ in 2019 compared to 2018 through the ATO Tax Integrity Centre, the ATO have ramped up review style activities and thrown the book at employers not doing the right thing - and they now have more information than ever to do so.

A reminder that the ATO have extended powers to investigate ‘contractor’ arrangements where they suspect SG was payable as it is legally a relationship of employment.
 

Action points

As always, the best form of action is to have solid procedures in place to manage your employer obligations. Taking the time with reasonable care at first instance to understand your obligations as an employer will save you and your business time, cost and headaches.

However, if you have:
  • Made unusual payments to employees – check whether that payment constitutes OTE.
  • Made a SG payment late – complete an SGC statement.
  • Received a notice of suspected late payment of SG – get on the front foot and work through what SGC payments are required. You may have the opportunity to reduce the impact.
  • Been classifying certain workers as contractors – review the conditions and nature of their service to ensure they are not considered employees at common law.
  • Received any ATO notice of review (or similar) – perform a thorough review of your workforce, including agreements to obtain comfort you have complied with your employer obligations.
  • Received a DPN – seek appropriate professional advice.
If you need any assistance with the above, including employer obligation health checks, assistance in calculating SGC and completion of SGC statements, advice on whether a specific payment is subject to SG, through to assisting with ATO reviews and compliance activity, please contact us so we can help address your unique situation.