Super for small businesses
Running a business and employing people involves lots of obligations. One of those is paying your employees’ superannuation. Usually, super is a compulsory payment made by employers to a superannuation fund or retirement savings account (RSA) on behalf of their eligible employees.
All employers must make these payments for eligible employees as part of the Superannuation Guarantee Legislation, introduced in 1992. Due to its complexity, super can seem very confusing and for many small business owners it’s often a struggle to fully understand their obligations as an employer.
Who do I need to pay?
Employers will generally have to make superannuation payments on behalf of employees who receive more than $450 in before-tax wages per calendar month.
This applies to all employees, whether they’re full-time, part-time or casual. However, some special provisions relate to those aged under 18 or who are a domestic worker.
The definition of employee is also quite wide and includes some persons who are regarded as contractors in other contexts.
The ATO has a specific SG Eligibility Decision Tool to assist employers in working out their SG obligations.
Where do I pay it?
Most Australian employees are entitled to choose the fund that best suits their needs. As an employer, you must offer eligible employees the right to choose their own fund or RSA via a standard choice form, which is issued by the ATO. This form must be offered:
- within 28 days of an employee’s commencement date
- within 28 days of your becoming aware that a fund is no longer eligible to receive contributions
- within 28 days of your switching your default fund.
A standard choice form does not have to be provided when an enterprise agreement specifies the fund to which contributions are paid.
The form must also say what fund the contributions will be paid to if the employee does not make a choice. This is called the employer default fund. For more information about this, see the ATO website.
Once employees have chosen their preferred fund, all super contributions must be paid into this account. If they are not, as an employer you run the risk of being penalised by the ATO.
Choosing a fund is not compulsory for an employee. If an employee does not choose a fund then you must pay their contributions to the employer default fund that you listed on the choice form.
To make it easier to meet for small businesses to meet their obligations, employers with 19 or fewer employees to can pay their superannuation contributions to the Small Business Superannuation Clearing House, a free online superannuation payments system that aims to reduce the time and money it takes to pay super into multiple accounts.
To find out more information about which employees are eligible for choice and your own obligations as an employer, visit the Australian Taxation Office’s Superannuation Guarantee Eligibility Decision tool.
How much do I need to pay and when do I pay it?
As of 1 July 2014, all employers must pay a minimum of 9.5 per cent of an eligible employees ordinary time earnings (OTE); that is, the amount they are paid for their normal hours of work, not for overtime.
This amount will increase in coming years. See the About super page for more information.
Super contributions must be paid into an employee’s account at least every three months by designated quarterly cut-off dates:
|1 July – 30 September
|1 October – 31 December
|1 January – 31 March
|1 April – 30 June
Claiming super contributions as a tax deduction
Eligible employers are entitled to claim a full tax deduction for compulsory super payments made on behalf of employees.
What happens if I don’t meet my super obligations?
There are a number of penalties that may apply if you have not meet all your obligations under the SG. Ways to run afoul of the superannuation guarantee include:
- not paying employees the full amount of super they’re entitled to, also known as a Superannuation Guarantee shortfall
- not paying super to an employee’s fund of choice, referred to as choice liability
- not making payment by the quarterly cut-off date
- not handing out a choice of fund form to new employees when this is required.
Employers who haven’t observed the rules of the SG must lodge a Superannuation guarantee charge statement - quarterly (NAT 9599) with the ATO and pay a super guarantee charge. The size of the fee will depend on the amount owed to the employee, the amount of interest accrued on what is owed and how many employees were affected.
For more information on other penalties may apply, visit the ATO superannuation page for employers.