Superannuation forms an important part of the remuneration of employees and certain contractors and the government enforces non-compliance accordingly. So it's important to really understand what your obligations are when it comes to paying superannuation and what could possibly happen if you fall behind. In this article we'll take a look at both.
Superannuation is currently required to be paid at a rate of 9.5% on top of amounts paid to employees and certain contractors which are deemed to be employees. The payment of the superannuation is required to be made each quarter no later than the 28th day following the end of the quarter.
Which employees need to have super contributions made? Basically anyone you employ (casual, part-time, full-time) will need to have superannuation paid on their behalf on top of their wages. There are a few exemptions to this and they include employees who earn less than $450 in a calendar month or do work of a private or domestic nature (e.g. a house cleaner) for less than 30 hours per week
What did you say about "certain" contractors? The definition of "employee" is different depending on which set of rules you're looking at (e.g. superannuation, PAYGW, workers compensation, payroll tax, etc.) and for superannuation the definition is quite broad meaning it includes some sole-trader contractors who are primarily being paid for their labour. There are some exemptions here, with the main one being for work done on a 'results' basis, rather than those being paid on a time basis. You can find out more about the need to pay superannuation for certain contractors here. And remember, if you're liable you need to pay the contractors superannuation fund direct - the payments are not made to the contractor personally.
TIP: If you're having trouble getting superannuation details out of your contractors try making it part of your services contract that you require the details up front before any work is done. This usually does the trick.
Once you've established who you're liable to pay superannuation for, it's time to report the proper amounts and make the payment! This is done quarterly and we recommend getting this done just before the end of the quarter - this means that you'll be sure to get a tax deduction for the payment in the right tax year (late payments made by the 28th after the end of the quarter are tax deductible in the period they are paid, payments made after the 28th are not tax deductible).
These days all the reporting and payments are made digitally using the SuperStream system which is typically built into whatever accounting package you use (including our favourite, Xero). The reporting allows the receiving superannuation fund to know who, what and when they relate to.
So, what happens if you fail to make the payments?
This is where things get serious. The government takes payment of superannuation with the utmost of seriousness - presumably because they know they can't afford for everyone to be on the aged pension (!) - and they have penalties to match.
Firstly, any payments made late are not tax deductible. They also generally incur an administration fee (per person, per quarter) and there will be interest added on top. All of this is also not tax deductible.
Losing tax deductions isn't great, but the real trouble can come in the form of a Directors Penalty Notice. These penalties can be issued personally upon directors of a company with outstanding superannuation and PAYGW obligations in relation to their employees (including certain contractors). The penalty is typically the full amount of the debt owing and it can be issued on new directors that weren't even involved in the company at the time (note there is a 30 day grace period, so any new directors should check that all employee obligations are completely up-to-date).
Now, as if personal penalties weren't bad enough, recent proposed changes to the law mean that directors may face up to a year in jail if they fail to meet their obligations when it comes to PAYGW and superannuation for their employees and eligible contractors. A year in the clink!
Bottom line? Always pay your superannuation obligations in full and on time. If you are unable to do so, you should be getting professional advice straight away - sticking your head in the sand is definitely not the way to go.
If you're a company director and the above has raised concerns for you, why not get in touch? We've worked with plenty of business owners over the years to help get them and their businesses out of sticky situations and we'd love to help you too.