What is superannuation?
Superannuation is the money you pay your employees to help them save for retirement. In Australia, superannuation is compulsory. The idea behind it is to give workers an additional source of income on top of the pension they’ll receive when they retire. Paying super is just as important as paying wages.
What is the Superannuation Guarantee (SG)?
Put simply, the Superannuation Guarantee, or SG for short, is the minimum amount of super that you need to pay your employees. Currently, the SG is 10% of wages, paid on top of salary and wages. The government recently passed a bill to increase the SG incrementally to 12% by 2025 to support an ageing population. These are the dates for the scheduled increases:
- 9.5% up to 30 June 2021
- 10% from 1 July 2021 to 30 June 2022
- 10.5% from 1 July 2022 to 30 June 2023
- 11% from 1 July 2023 to 30 June 2024
- 11.5% from 1 July 2024 to 30 June 2025
- 12% from 1 July 2025
It’s important to be aware of these increases. You will need to review your employment contracts every year and ensure that your payroll systems are updated with the SG increase. The SG needs to be paid into a compliant super fund or retirement savings account. Workers who are eligible for superannuation can nominate a fund of their choice. If they don’t nominate a fund, you pay their superannuation into the fund that you have selected for them as a default.
You can make sure the super fund your employee has nominated is a compliant fund by looking it up in the ATO’s Super Fund Lookup tool. If you can’t see it there, you can ask for written confirmation from fund’s trustee, stating the fund is a complying super fund, that it intends to accept super contributions, and that it will satisfy the relevant legal requirements. Getting written confirmation is important because it will protect you if the fund is non-compliant. If the fund doesn’t comply with the requirements, the contributions you make
- won’t be included as SG payments,
- won’t be tax deductible and
- you may need to pay the fringe benefits tax on these contributions.
When do I need to pay super?
The ATO has set four quarterly dates by which you must pay super contributions. You can choose to pay super more frequently as long as the total SG amount is paid by the quarterly deadlines. You need to start paying super from your employee’s first day of employment.
Due dates for SG payments each quarter
- Q1 (1 July to 30 September): due 28 October
- Q2 (1 October to 31 December): due 28 January
- Q3 (1 January to 31 March): due 28 April
- Q4 (1 April to 30 June): due 28 July
If the due date is on a weekend or public holiday, you can pay the contribution on the next business day. It’s important to make the payments by these dates. If you don’t, you will need to pay the Super Guarantee Charge (SGC).
Concessional and non-concessional contributions
The distinction between concessional and non-concessional contributions is whether the contributions are taken out of your employee’s earnings before or after income tax is paid. The contributions that either you or your employee pay into their super fund before income tax are called concessional contributions, and non-concessional contributions are paid into the super fund after income tax. Concessional contributions are still taxed at a rate of 15% in your employee’s super fund.
Before-tax contributions (concessional)
- Super Guarantee payments are concessional contributions.
- There is a limit on these contributions: as of 1 July 2021, the concessional contribution cap is $27,500. This cap may be higher for certain employees if their contributions were below the full amount of the cap in previous years. This is called carry-forward of unused concessional contributions. These must be used within five years.
Salary sacrificing
If you offer salary sacrificing as an employee benefit, your employees may choose to top up their super accounts through salary sacrificing. Salary sacrificed super contributions are concessional and are only taxed at 15% in your employee’s super fund, although high-income earners (more than $250,000 per year) will be taxed at 30%. These payments do not decrease your employee’s Ordinary Time Earnings (OTE), which is the basis for your calculation of their super entitlement, and they do not count towards your Super Guarantee contributions. The part of your employee’s salary they sacrifice is not subject to PAYG withholding tax.
After-tax contributions (non-concessional)
- These contributions come out of your employee’s after-tax income and are not taxed in their super fund.
- Your employee can make an after-tax contribution simply by depositing their own money in their super fund.
- Generally, the cap on non-concessional contributions is $110,000.
Payroll deduction
Employees may also request you make after-tax super contributions on their behalf by setting up a payroll deduction, where you agree on an amount that you regularly pay into their superannuation account. Payroll deductions are different to salary sacrificed contributions, which are taken out before tax. When making these contributions, make sure they are in line with:
- the employee’s terms of employment
- legal requirements
- industrial award conditions
These super contributions are separate to your SG obligations and do not affect the amount that you withhold as PAYG tax. You must make sure these payments are received in your employee’s super fund within 28 days. Extra super contributions must be reported through Single Touch Payroll (STP) or your employee’s annual payment summary.
How to calculate superannuation
To calculate the Superannuation Guarantee, simply multiply your employee’s Ordinary Time Earnings (OTE) by 10%. OTE is the amount you pay your employees for their ordinary work. This includes some allowances, loadings, bonuses and leave entitlements, but generally excludes overtime and expenses. Working out your employee’s OTE can get complicated. For example, while overtime generally does not count as OTE, it should be included if it is part of your employee’s ordinary rostered hours of work. You can use the ATO’s guide to determine which payments to include in OTE.
Superannuation and tax
Super tax: superannuation and payroll tax
The super contributions you make on behalf of your employees or a director are considered wages and you need to pay payroll tax on them. Contributions are taxable if they are made:
- to a superannuation fund
- as a superannuation guarantee charge
- to any provident or retirement fund or scheme
- as salary sacrificed payments
- as lump sums paid on behalf of a class of employees
- as any form of superannuation
- to contractors under a relevant contract
Tax-free super
After-tax contributions your employee makes to a super fund, even one that you administer, aren’t considered employer contributions and you therefore do not need to pay payroll tax on these. Payroll tax is not payable on super contributions to employees who are exempt from payroll tax, for example apprentices and trainees. General interest or any penalty you are required to pay as part of the superannuation guarantee charge is also not liable for tax.
Claiming a tax deduction for contributions
Any SG contributions or award super payments you make on behalf of your employees are fully tax deductible. You can only claim tax deductions for these payments in the same financial year in which you make the contributions. Any salary sacrificed contributions you make on behalf of your employees are also tax deductible, as long as there is a written agreement between you and your employee permitting you to make these payments.
How do I know if I have to pay super for my employees? Are there exemptions?
There are multiple factors that determine whether you need to pay super. According to the ATO, you generally need to pay super on top of wages if you pay an employee more than $450 in a calendar month. As a general rule, you need to pay super to all employees. This includes employees who:
- are under 18 or are private or domestic workers (they must work more than 30 hours per week to be eligible for super)
- are full-time, part-time or casual
- are receiving a super pension or annuity while working (this includes employees on transition to retirement)
- are temporary residents, such as backpackers (when they leave Australia, they can claim the payments you made through a ‘departing Australia superannuation payment’)
- are a company director
- are family members working in your business
You don’t need to pay super to employees who
- aren’t Australian residents and do work for you outside Australia
- are foreign executives with certain visas or entry permits
- are paid under the Community Development Employment Program
- are working in Australia temporarily and are covered by a bilateral superannuation agreement. If this is the case, you need to keep a copy of the employee’s certificate of coverage.
You may also need to pay superannuation to some contractors depending on the nature of the working arrangement. You can use this tool from the ATO to help you determine your super payment obligations towards contractors.
Is super always paid on top of wages and salary?
For most employees, yes. Whether super is paid on top of salary and wages or their total remuneration package includes super depends on the wording of the employment contract. If super is included in their remuneration package, the SG increases could potentially be absorbed by reducing your employee’s base salary.
Stapled super funds and your business
With the aim of reducing the number of super funds workers accumulate throughout their working life, the Australian government has introduced ‘super stapling’, which is set to come into effect from 1 November 2021. Super stapling means Australians will be attached to only one super fund for life unless they choose to open multiple super accounts. How will this impact you as an employer? The new measure will require some changes in your onboarding process. You will need to follow these steps when onboarding new recruits:
- Provide your new starter with an ATO superannuation standard choice form and encourage them to choose a fund that suits them. If your employee nominates a fund, give the details to your HR/payroll team.
- If your new recruit chooses not to nominate a fund, you will need to check with the ATO if they have a stapled fund.
- If the ATO confirms they have a stapled fund, you will need to make their super payments to this fund. If they don’t have a stapled fund, you should pay super into your default fund or the fund named in their enterprise bargaining agreement, if they are covered by one.
Keeping records
Keeping good employee records is not only good practice, it is also a legal requirement prescribed in the Fair Work Act 2009. Even if you have been meeting your SG requirements and reporting any relevant information to the ATO, it is still important to have records to use as evidence should you ever be audited. The Fair Work Ombudsman requires employee records to be:
- readily accessible to a Fair Work Inspector
- legible and in English (preferably in plain, simple English)
- kept for seven years
- not altered unless to correct an error
- not false or misleading to the employer’s knowledge
You must keep records of any superannuation contributions you make, which include:
- the amount of the contributions
- the dates on which each contribution was made
- the period over which the contributions were made
- the name of the fund to which a contribution was made
- the reason you as the employer are liable to make the contribution, including a record of any request your employee made (including the date) for you to pay their super into a particular fund
As an employer, you have to deal with a lot of red tape and it’s easy to miss things when you’re busy. But by following this guide to superannuation, you can get on the right track towards fulfilling your important superannuation obligations.
