One day you look forward to retiring and enjoying the superannuation you have earned throughout your career. If you have employees earning more than $450 a month you must provide Superannuation Guarantee (SG) contributions as part of their wages. In this guide we will explain what you must do and how you go about paying Superannuation.
The superannuation guarantee scheme requires employers to provide sufficient superannuation support for their employees. Employers are obliged to contribute a minimum percentage of each eligible employee’s earnings (ordinary time earnings) to a complying superannuation fund or retirement savings account (RSA).
WHY do I have to pay Superannuation?
Superannuation is a government requirement to help workers provide for their retirement.
- the SG is currently calculated at 9.5% of an employee’s ordinary time earnings https://www.ato.gov.au/business/super-for-employers/how-much-to-pay/?anchor=OrdinarytimeearningsOTE#OrdinarytimeearningsOTE
WHAT else do I need to understand?
The employer must pay the SG at least four times a year, by the quarterly due dates.
- you must pay (via electronic funds transfer or Bpay) and report super electronically in a standard format,ensuring you meet SuperStream standards
- your superannuation payments must go to a complying superannuation fund – most employees can choose their own fund
- if you don’t pay the SG on time, you may have to pay the superannuation guarantee charge
- This does not apply if you are self-employed or a sole trader and your super contributions are only for yourself
- Due dates for the contribution payment each quarter are 28 January, 28 April, 28 July, and 28 October
Whilst the SG is a cost to the business from a wages perspective the good news is that the administrative part of the process has been made simple for small business. Instead of making individual payments to each employee’s super fund, you make a single payment totalling all employee contributions. You have these choices:
- If your Payroll software is SuperStream compliant you can use it for the process. Ensure that the system covers both the SuperStream compliant information and the payment.
- The Small Business Superannuation Clearing House (SBSCH) offered by the ATO is a free service you can use to make superannuation guarantee (SG) contributions. Eligible businesses are those with 19 or fewer employees or an annual aggregated turnover of less than $10 million. https://www.ato.gov.au/Business/Super-for-employers/Paying-super-contributions/Small-Business-Superannuation-Clearing-House/ The big benefit here is they will split the payments across all the different super choices your employees may have made.
- Large Super funds have the facility to do it for you. Check with your fund to see if this is possible for your business.
- A messaging portal can take your information and make it SuperStream compliant then send it to the relevant funds. You also provide them with a single payment to cover all employees.
HOW do I pay an employee Superannuation?
When a new employee starts who falls into the SG you should:
- Offer your employees a choice of fund and provide them with the standard choice form. https://www.ato.gov.au/business/super-for-employers/setting-up-super/offer-your-employees-a-choice-of-fund/
- Provide them with information to help them understand superannuation and investment options. https://moneysmart.gov.au/grow-your-super Note: It is illegal for you to provide investment advice unless you are a licensed advisor.
- Provide the employee Tax File Number to their fund
- Keep records to show you have offered a choice and that you have paid. These records must be in English and kept for 5 years.
If you use an automated payroll tool (see our essential guide on payroll software) then this process will be further simplified.
Employees may also choose to make additional salary sacrifice contributions that will be taxed at a concessional rate of 15% up to a limit at which point additional tax must be paid. (This might have the benefit of reducing the employee’s tax obligation). Through the same mechanism above as an employer, you are required to report this. https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/
Your obligation to pay superannuation to any one individual is capped. Current rates can be found here https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Maximumsupercontributionbase#Maximumsupercontributionbase
SUMMARY – Superannuation Guarantee
Superannuation is compulsory for all employees earning more than $450 a month. Employees can choose their own fund and you must report all payments to the ATO who offer a special service if you have under 19 employees. Remember to budget for this cost in your business calculations.