As a business employer you have an obligation to pay superannuation on behalf of your staff. And the tax penalties and tax administration of the superannuation guarantee system is complex and littered with multiple tax penalties ranging from higher superannuation, administration fees, loss of tax deductions and interest costs.
The SGL applies to employment Australia wide – so workers in Perth or interstate will attract SGL for their employer (whether based in Western Australia, Victoria or elsewhere).
What is the super guarantee levy?
If you employ staff or you engage a contractor you have an obligation to pay the superannuation guarantee levy (SGL) on behalf of that person. Importantly the SGL is:
1. Managed by the Australian Tax Office.
2. Payable at the rate of 10%; of
3. The employees ordinary earning’s; that is
4. Paid to the employee’s super fund at least 28 days after the end of each quarter.
The ordinary times earnings (OTE) of an employee can be a complex item. And OTE generally include the employee’s salary without overtime or bonus payments for overtime worked.
What to do if you miss the payment
The tax laws surrounding the payment of superannuation. And even if you are one day later for paying an employee’s superannuation your business will be exposed to some harsh penalties including:
1. The employee’s superannuation that you now pay does not enjoy a tax deduction;
2. You have to now lodge an ATO form notifying the ATO of the late payment (called a NAT9599);
3. Paying a $20 administration fee for each employee late to the ATO:
4. You will incur interest on the late payment to the date of lodging the form.
Importantly the ATO does not have a discretion to waive the above penalties. The penalties apply to each person irrespective of the reasoning behind them.
How interest is calculated
Further, the interest applied by the ATO applies from the beginning of the quarter until the date the late form is lodged with the ATO.
National Freight Forwarders missed an employee’s superannuation obligations in for December 2013. The payroll officer paid the superannuation obligations for that quarter in February 2014 (say $40k payment).
The SGC9599 is lodged in November 2021.
The interest penalty (at the rate of 10%) applies from 1 October 2013 to November 2021 – even though the payment was only one week late.
How the SGC is calculated
The Super Guarantee Charge (SGC) is different to SGL. SGC applies if you pay the SGL late.
The SGC is payable on the total salary and wages paid to the employee. So items like employee overtime – previously excluded from OTE – are not included in the calculation of SGC.
The 200% penalty
The ATO can apply a 200% penalty for employers who are not paying their employee super on time. And while we (thankfully) have not seen a penalty like this it is large enough to know that the SGL obligations are so important that a business should focus on getting the calculation, payment and reporting correct.
How missed SGL is caught
The ATO have very good real-time systems to identify employers who are missing their SGL obligations for their staff.
In effect every time you report wages to the ATO you are also reporting the obligation to pay your staff SGL. Further, every time a super fund (with the exception of SMSF’s) receives a contribution from an employer – the super fund reports the contribution directly to the ATO.
So the ATO know when the SGL obligation arose and they know when the SGL obligation was paid. The ability to data match the two timing periods is very simple and SGC audits for clients are now occurring 2 months after the quarter that is under review.
The SGC is personal
If a company incurs the SGC the obligation is now a personal obligation of the directors. And there is no time limit on how far back the ATO can go and review a companies SGL compliance.
Six tips to help you avoid the SGC
The following tips can help you avoid the cost of incurring SGC:
1. Pay the SGL more regularly than once a quarter.
2. Apply sound HR practices so you capture new employees super fund details correctly.
3. Take note of the superannuation clearing house cut-off dates. Some clearing houses require 14 days to disburse funds.
4. Act quickly if you do miss a payment.
5. Engage with a professional payroll provider like Westcourt to manage your employment obligations.
6. Ensure your tax advisor reviews and signs off on your SGL obligations yearly.
The important take-away is that the penalties and costs for making a mistake on your employee’s superannuation is large. Getting a qualified independent tax advisory firm like Westcourt to review, document, prepare or support your business with its staff super obligations is just good business practice.
If your business advisor is not documenting your SGL compliance or if you have found yourself needing help in fixing a mistake – talk to Westcourt. We have the systems and knowledge to manage your payroll or support your internal team in meeting your tax and super obligations.