Superannuation
Superannuation guarantee
The superannuation guarantee is the law requiring employers to pay a minimum percentage of an eligible employee's ordinary time earnings into a super fund, to help fund their retirement.
The superannuation guarantee, often shortened to SG, is the system that requires employers to contribute a minimum percentage of their employees' earnings to a complying super fund. The percentage is set by legislation and has increased over time, so the rate in force should always be checked on ato.gov.au. SG is paid on top of salary or wages. It is not deducted from the employee's pay, and employers who treat it as part of the wage package need to be sure that is what the agreement says.
SG generally applies to most employees, whether full-time, part-time or casual, and regardless of age and how much they earn, subject to some exceptions. It also applies to some contractors who are paid mainly for their labour, which catches out many businesses. The contribution is calculated on ordinary time earnings, and in some cases there is a maximum contribution base that caps the earnings on which SG must be paid each quarter.
Employers must pay SG to the employee's chosen fund by the quarterly due dates, which fall 28 days after the end of each quarter. Payment is treated as made when the fund receives it, so allowing time for clearing is vital. Many employers use a clearing house to send contributions to multiple funds. SG contributions are generally tax deductible to the employer when they are paid on time, and count as concessional contributions for the employee.
If an employer does not pay the full SG on time, they must lodge a super guarantee charge statement and pay the charge, which includes the shortfall, interest and an administration amount. The charge is not tax deductible. The ATO also actively checks employers who fall behind, and can use information from Single Touch Payroll to identify non-compliance. Employees can report unpaid super to the ATO.
SG does not involve GST directly, since wages and super contributions are outside the GST system and the employer cannot claim credits on them. However, the employer's tax invoice records still matter for the GST on other business costs. Employers who provide salary sacrifice arrangements should understand that SG may need to be calculated on the pre-sacrifice salary, depending on the arrangement.
A common mistake is to pay super late, or to pay it only once a year. Another is to forget that SG applies to casuals and to some contractors. Employers should also check that they have offered employees choice of fund when required.
This is general information only, so confirm your obligations with the ATO or a registered tax professional.
Worked example
A business pays an employee $20,000 in ordinary time earnings in a quarter. To show the arithmetic, assume a hypothetical SG rate of 10%, a round number that is not the current rate. SG is $20,000 x 10% = $2,000, paid on top of wages into the employee's fund within 28 days of quarter end. In practice the business uses the legislated rate from the ATO. If paid late, the business owes the super guarantee charge, which is not deductible.
Practical tips
- Check the current SG rate on the ATO website each time rates change, and update payroll software.
- Pay super early enough that the fund receives it by the due date, since the date of receipt is what counts.
- Do not forget to include contractors who are paid mainly for their labour, as they may be treated as employees for SG.