The statistics on employer superannuation guarantee (SG) compliance appear to be good, with over $71 billion collected without intervention from regulators in 2020-21, which accounts for over 94%. The net gap in SG has decreased from 5.7% in 2015-16 to 5.1% in 2020-21. Voluntary contributions increased significantly in 2019-20 due to COVID-19 stimulus measures. The Australian Taxation Office (ATO) believes that this increase is due to the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.
Despite these improvements, there is still a significant amount of money owed to workers in superannuation funds. The 5.1% net gap equates to $3.6 billion in unpaid payments. Within this amount, $1.8 billion is owed due to hidden wages, such as off-the-books cash payments, undisclosed wages, and non-payment of super for employees who are misclassified as contractors.
As of 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. This is due to the fact that quarterly reporting allows the debt to escalate before the ATO has a chance to identify and act on an emerging problem.
Employers cannot rely on the government to 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.
Employers are required to use Single Touch Payroll (STP) to report payments to workers. This mechanism provides regulators with a comprehensive, granular level of near-real-time data on income paid to employees. The Australian Taxation Office (ATO) is now matching STP data with information reported by superannuation funds to identify late payments and under or incorrect reporting.
Late payment of quarterly superannuation guarantees is becoming a significant cause of concern. Some employers miss payment deadlines due to either cash flow difficulties (i.e., SG payments not set aside during the quarter) or technical issues where the timing of contributions is incorrect. The super guarantee needs to be received by the employee’s fund before the due date. If you are not using the ATO’s superannuation clearing house, payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not tolerate late contributions. Contributions are either on time or not.
When SG is paid late
Suppose an employer fails to meet the quarterly SG contribution deadline. In that case, they must pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of:
• The employee’s superannuation guarantee shortfall amount – i.e., the SG owing.
• 10% interest p.a. on the SG owing for the quarter – calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG statement is lodged, whichever is later; and
• An administration fee of $20 for each employee with a shortfall per quarter.
Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount.
Also, the calculation for SGC is different from how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime.
It’s vital that employers who have made late SG payments lodge a superannuation guarantee statement quickly, as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement or failing to provide a statement during an audit of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount.
The danger of misclassifying contractors
Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantees, payroll taxes, and workers’ compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong.
A genuine independent contractor who is providing personal services will typically be:
• Autonomous rather than subservient in their decision-making;
• Financially self-reliant rather than economically dependent on your business; and
• Chasing profit (i.e. a return on risk) rather than simply accepting a payment for the time, skill and effort provided.
‘Payday’ super from 1 July 2026
The Australian Government plans to introduce new laws mandating employers to pay SG simultaneously as employee salary and wages. The aim is to increase the frequency of SG contributions and ensure that employees are around 1.5% better off by the time they retire. This will also help avoid any SG liability build-up if the employer misses a deadline.
The proposal was initially announced in the 2023-24 Federal Budget, and now Treasury has released a consultation paper seeking feedback on the plan. If the legislation is passed, these reforms are scheduled to take effect from 1 July 2026.
What is proposed?
The consultation paper presents two options for when the Superannuation Guarantee (SG) payments should be made. The first option is to pay on the same day as salary and wages, while the second option is to have a ‘due date’ model where the employee’s superannuation fund must receive contributions within a specified number of days following the ‘payday’. A ‘payday’ refers to every employee payment that includes an OTE component.
The updated SG legislation would also include interest on late payments from the ‘payday’.
Currently, 62.6% of employers make SG payments quarterly, 32.7% pay monthly, and only 3.8% make payments fortnightly or weekly.
We will keep you informed about ‘payday’ super as more details are released. There is no need for you to take any action at this time.
For all of your superannuation guarantee queries, please contact the Client Care Team today.