Employers are responsible for making superannuation contributions on behalf of their eligible employees at the legislated rate. Failure to do so can result in penalties. Employees have the option to choose their own super fund or use the default fund chosen by their employer.

In short, no. You do not pay superannuation on all earnings that an employee or director earns. However, it is essential as a business owner to understand the types of earnings that are subject to super contributions and which aren’t. This allows you to manage costs, comply with legal requirements, treat employees fairly and maintain trust and loyalty.

In Australia, employers are generally required to pay superannuation (super) contributions on an employee's ordinary time earnings (OTE). Ordinary time earnings include most types of earnings that an employee receives for their ordinary hours of work, such as wages, salaries, commissions, bonuses, allowances, and paid leave.

However, there are certain types of payments that are not considered ordinary time earnings and, therefore, are not subject to super guarantee contributions. These may include overtime payments, some types of bonuses or allowances, redundancy payments, and payments for leave loading.

Employers should consult with their tax advisors or refer to official guidance from the Australian Taxation Office (ATO) for precise information on what types of earnings are subject to super contributions.

Whilst you know to pay super for your employees, you may not know contractors may also be deemed as an employee for superannuation purposes and may also be liable for superannuation guarantee (SG).

Paying super for contractors can be a bit tricky, as it largely depends on the nature of the working relationship. According to the Australian Taxation Office (ATO), you would be liable to pay super contributions if you pay them:

• under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
• for their personal labour and skills (payment isn't dependent on achieving a specified result)
• to perform the contract work (work cannot be delegated to someone else).

If the contractor is deemed to be an employee for superannuation purposes, the business will need to pay super contributions for them. However, if the contractor is genuinely running their own business and is not considered an employee, the business typically won't be required to pay superannuation for them.

If you enter into a contract with a company, trust or partnership, you do not have to pay super for the person they employ to do the work.

The ATO have a useful decision tool business owners can use to help determine whether or not the business is liable to pay superannuation for their contractors:

https://www.ato.gov.au/calculators-and-tools/super-guarantee-eligibility

It's essential for businesses to carefully assess the working relationship with contractors and seek professional advice if unsure about their superannuation obligations. Failure to correctly determine and fulfill super obligations for contractors can result in penalties and legal consequences.

*Different rates apply for Norfolk Island (transitional rate)

** If you need percentages for years prior to 2024, refer directly to the ATO

In March 2024, Sophie Smart as an employee of SMART Pty Ltd earned a gross monthly wage of $5,000. This included their normal Ordinary Time Earnings (OTE) of $4,500 and overtime of $500.
The current 2024 Superannuation Guarantee (SG) rate is 11%.

OTE             $4,500
Overtime    $500
TOTAL         $5,000

Superannuation Guarantee is payable on OTE but not on overtime. This means that SMART Pty Ltd is liable to pay $495 to Sophie Smart's nominated superannuation fund by the required deadline.

SG is due on a quarterly basis, but you can opt to pay this more frequently to help with cashflow.

Check your payroll app! These days most payroll software solutions allow you to pay super through their app.

If you use Xero and you’re not sure how to process your employee superannuation, reach out to us for assistance.

Alternatively, the Small Business Superannuation Clearing House run by the Australian Taxation Office (ATO) is the way to go. If you opt to process your payments this way, you must register the first time you use the clearing house. To do this, you’ll need to provide information about:

•      your business and employees,
•      your employees’ choice of fund,
•      your default fund (this is where payments will go if the employee doesn’t choose a fund)
•      anyone authorised to use the clearing house on your behalf, such as a bookkeeper

From here you will then need to work out how much super you need to pay and process these details for each employee each time you make a payment.

All clearing houses (whether you use the Small Business Superannuation Clearing House run by the ATO or Xero) will distribute the funds directly into your employees’ superfund.

Payments may take up to 7 business days to be transferred and make it to the employees’ nominated fund so it is important to ensure you consider this timing when due dates are looming.

Superannuation Guarantee is your employee’s retirement. Every superannuation contribution are funds that get invested to hopefully one day, allow your employee to retire with minimal financial stress.

We get it though – business can get busy, and payments can fall through the cracks! So what happens when an employer fails to pay super contributions by the due date as mandated by the Australian Taxation Office (ATO)? Super Guarantee Charge (SGC)!

The Super Guarantee Charge (SGC) is a mechanism used by the Australian Taxation Office (ATO) to address situations where employers fail to meet their superannuation guarantee obligations. When employers do not pay the required super contributions for their eligible employees on time or at all, they are liable to lodge and pay the SGC.

The SGC consists of several components:

• Unpaid Super Contributions: This includes the actual amount of superannuation contributions that the employer failed to pay for their employees.
• Interest: Interest is calculated on the unpaid super contributions from the beginning of the quarter in which the contributions were due to be paid until the date the SGC statement is lodged with the ATO. The interest rate applied is set by the ATO and is generally higher than the standard bank interest rates.
• Administration Fee: A flat-rate administration fee is added to the SGC to cover the ATO's costs of administering the charge.

It's important to note that the SGC is not tax-deductible for the employer. Additionally, the SGC must be paid to the ATO, and the ATO then distributes the superannuation contributions to the employees' super funds.

There are also additional penalties that may be imposed for unpaid superannuation contributions. For example, if a business operates under a company, the director has a legal responsibility to meet SGC obligations and can be found to be personally liable. 

So, in conclusion, there are a few perks to making sure superannuation contributions are paid on time! Keep superannuation expenses deductible, avoids interest and penalties and keep a good relationship with your employees.

Employees with a Retail or Industry Superannuation Fund:

• Super Fund name
• Unique Superannuation Identifier (USI) – this is not compulsory; however, it might help the employer select the correct superfund and avoid payments bouncing back
• Member Number

Employees with a Self-Managed Superannuation Fund:

• Super Fund name
• Australian Business Number (ABN)
• Member Number
• BSB and Account Number for funds to be received into
• Electronic Service Address (ESA)

When employees do not choose their own superannuation fund, employers are required to nominate a default super fund where contributions will be directed. This is also beneficial to the employer where their employee fails to provide their own super fund details and don’t have a stapled fund.

The super fund you nominate must:

• be a complying fund (one that meets specific requirements and obligations under super law)
• be registered by the Australian Prudential Regulation Authority (APRA) and offer a MySuper product (these are cost-effective superannuation products with a basic set of features).

To confirm that a fund meets these requirements, you can:

• contact the fund
• check Superfund Lookup  (our register of complying super funds).

Ensure you keep records confirming that your nominated fund offers a MySuper product.

You must provide eligible employees a Superannuation standard choice form within 28 days of their start date.

You must also provide one if:

• your employee asks for one
• you can't contribute to their chosen fund or it's no longer a complying fund
• you change the employer-nominated fund into which you pay the employee's contributions.

You must provide your employee with details of your nominated default super fund. On the Standard choice form, this information goes in section C.

You don't have to use the form, but any alternative document must cover the same information. 

For employees who start before 1 November 2021, you must pay super to your employer-nominated fund (default fund) or another fund that meets the choice of fund rules by the due date, if your employees have not:

• or cannot choose their own fund
• provided information about their choice of fund by the time their super guarantee contributions are due.

From 1 November 2021, if you have new employees start you may have an extra step to take if they don’t choose a super fund. You may now need to request their ‘stapled super fund’ details from the ATO.

A stapled super fund is an existing super account which is linked, or 'stapled', to an individual employee so that it follows them as they change jobs.

You will also need to request stapled super fund details for employees who aren't eligible to choose their own fund, including:

• temporary residents
• those covered by an enterprise agreement or workplace determination made before 1 January 2021.

If no stapled super fund found, you can pay into your default fund to meet your superannuation guarantee requirements.

When a super guarantee payment bounces back, it's essential for employers to act promptly to rectify the issue and ensure compliance with their obligations.

1. Verify the accuracy of the employee's super fund details, including the fund name, ABN, USI, and member number, to identify any errors.
2. If the details are correct, contact the super fund to understand the reason for the bounced payment, which could be due to account closure or other administrative issues.
3. Once the problem is identified, correct any errors and reprocess the payment as soon as possible.

If the payment remains unresolved, consider seeking guidance from the ATO or a professional advisor to ensure compliance and avoid potential penalties.

With Single Touch Payroll (STP) being a streamline reporting framework designed by the Australian Taxation Office (ATO), the ATO now has real-time data to manage and monitor employers are keeping up with their obligations.

Superannuation Guarantee is highly audited area and is important employer’s stay on top of their reporting and payment obligations. The ATO are really cracking down on unpaid super and can impose penalties of up to 200% of the liability.