According to the Australian Taxation Office, workers are owed above $3.6bn in superannuation guarantee – the amount the regulators and government are looking to change dramatically. The statistics on employer superannuation guarantee compliance seem good with above 94%, or above $71bn, collected with no intervention from the regulators in 2020-21.
The net gap in superannuation guarantee has declined to 5.1% from 5.7% in 2020-21. The COVID-19 stimulus measures helped in voluntary contributions with an increase in 2019-20, which the ATO says they “suspect shows the link between super contribution payment and PAYG withholding by employers. PAYG withholding is associated with the ability to claim stimulus payments such as Cash Flow Boost.”
Despite these gains, a little bit adds up, and 5.1% corresponds to a $3.6 billion net shortfall in payments that should be in workers’ superannuation plans. $1.8 billion in payments from concealed wages lurking within the sum owed. Off-the-books cash payments, unreported salary, and non-payment of superannuation where employees are misclassified as contractors are examples.
It’s important to note that as of 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which means that it is unlikely to ever be recovered. The current system of quarterly reporting can lead to debt escalating before the ATO has a chance to identify and act on an emerging problem. Employers shouldn’t assume that the Government will tackle SG underpayments in the same way they have in the past with compliance programs. Instead, technology and legislative change will be used to address the issue.
Single Touch Payroll Matched to Super Fund Data
To report payments to workers, employers must use Single Touch Payroll (STP), which provides a comprehensive, granular level of near-real-time data to regulators on income paid to employees. The ATO is now cross-referencing STP data with the information reported to them by superannuation funds in order to identify late payments, as well as any instances of under or incorrect reporting.
Late payment of quarterly SG is rising as an area of concern with some employers missing deadlines of payments, either due to cash flow difficulties, or technical issues where contribution timing is not accurate. SG needs to be received by the funds of employees prior to the due date. Unless you use the ATO’s superannuation clearing house, payments are not likely to be received by the employee’s fund if the quarterly payment is paid on the due date. The SG laws can’t tolerate ‘a little bit’ late.
When the Superannuation Guarantee is Paid Late
If an employer doesn’t meet the deadline for quarterly SG contribution, they have to pay the SG Charge (SGC) and file an SG statement within a month of the late payment. The SGC applies even if the outstanding SG is paid soon after the deadline. The SGC comprises:
- The employee’s SG shortfall amount – i.e. the SG owing.
- On the SG owing for the quarter, 10% interest p.a. which is calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG was filed, whichever is later.
- $20 administration fee for each employee with a shortfall per quarter.
Even after paying the outstanding amount, SGC amounts are not deductible. The calculation for SGC is different from the calculation of SG. The calculation for SGC is made using the salary or wages of employees rather than their ordinary time earnings (OTE). The salary or wages of the employee may be higher than their OTE, especially if you have employees who are paid overtime.
It is important that employers that have paid the SG payments, file a superannuation guarantee statement as soon as possible as interest accrues until the statement is filed. The ATO can apply penalties for late lodgment of a statement, of up to 200% of the SG charge.
The Danger of Misclassifying Contractors
Many business owners think that if they hire independent contractors, they will not be responsible for superannuation guarantee, PAYG withholding, workers’ compensation and payroll tax obligations. However, rules work slightly differently and in some cases, contractors can be treated as if they were employees. Independent genuine contractor who provides personal services will be:
- autonomous in their decision-making
- financially self-reliant
- chasing profit
‘Payday’ Super from 1 July 2026
The government is likely to introduce laws that will require employers to pay SG when they pay employee wages and salary. The reason behind this is that by maximising the frequency of SG contributions, employees will be approximately 1.5% better off by retirement, and there will be fewer chances for an SG liability to establish where the employer misses a deadline.
Initially announced in the 2023-24 Federal Budget, a consultation paper has been released by the Treasury to begin the process of making payday super a reality. The reforms will come into effect from 1 July 2026.
What is Proposed?
The consultation paper discusses two options for when employers should make SG (Superannuation Guarantee) payments. The first option is to make the payments on the same day that employees receive their salary or wages. The second option is a ‘due date’ model that requires employers to make contributions to their employees’ superannuation funds within a certain number of days following ‘payday’. The term ‘payday’ refers to every payment made to an employee that includes an OTE (Ordinary Time Earnings) component. In addition, interest would accrue on late payments from ‘payday’. Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% make them fortnightly or weekly.