In Australia, every employer that has employees has a potential compulsory superannuation contribution to make, at least, every quarter. My experience is that many employers have no concept of the implications of paying their superannuation contributions late. This is something that all employers should understand because it is a costly thing to do.
Broadly, if an employee is aged between 18 and 70 and earns $450 or more in a month, superannuation contributions must be made on behalf of the employee. It does not matter whether the employee is engaged full-time, part-time or on a casual basis. If an employee is under the age of 18, superannuation contributions may still be required. This happens when the employee is paid $450 or more in a month and works more than 30 hours in the week.
The amount of the contribution must be at least 9% of the “ordinary time earnings” (“OTE”) of the employee and must be paid by the 28th day following the end of each quarter (“the cut-off date”). OTE are earnings in relation to the normal or ordinary hours that a person works. So, generally, earnings in respect of overtime hours are not included in the calculation. However, defining what are the ordinary hours of work of many employees is not straight forward.
What happens if you don’t pay the required superannuation contributions by the cut-off date?
When this happens, you must prepare and lodge a Superannuation Guarantee Charge Statement and pay the Superannuation Guarantee Charge to the Australian Taxation Office. This charge consists of three components. These are, the superannuation guarantee shortfall, the nominal interest charge and the administration charge. It is important to note that none of this payment can be claimed as a tax deduction.
The superannuation guarantee shortfall replaces what should have been contributed to the employee’s superannuation fund. However, there is a difference. The shortfall is calculated on the total salary and wages paid to the employee in the month. This can be different to, and more than, OTE.
The nominal interest charge is at a rate of 10%. This is calculated from the beginning of the quarter to the time the Superannuation Guarantee Charge Statement is lodged. The administration charge is $20 per employee.
There can also be a penalty for not offering choice of superannuation.
If you have paid some superannuation contributions, these will reduce the amount of the charge. Also, if you make contributions late, but within one month of the cut-off date, these contributions can be offset against the shortfall and the nominal interest charge but not the administration charge.
The message is that it is much better to pay contributions on time. In this way businesses can avoid the extra costs of administration, the non-deductibility of the superannuation guarantee charge and the resulting poor morale of their employees who will know that their employer has not met its responsibilities to them.