Superannuation Guarantee

The Superannuation Guarantee is a compulsory system of superannuation support for Australian employees, paid for by employers. The system was introduced in 1992. Employers pay a percentage of the ordinary time earnings of their employees (including part-time and casual employees)who are aged over 18, and who are paid $450 (before tax) a month, into a complying superannuation fund or retirement savings account. This article summarises the key features of the scheme.

 
This commentary is based on writings by Shirley Murphy, Tax and Superannuation Consultant.
 
What is the Superannuation Guarantee scheme?
 
The Superannuation Guarantee (SG) is a compulsory system of superannuation support for employees, paid for by employers. The system was introduced in 1992.
 
Up to 1 July 2013 employers paid 9% of the ordinary time earnings of their employees (including part-time and casual employees) who are aged over 18, and who are paid $450 (before tax) a month, into a complying superannuation fund or retirement savings account. This rate increased to 9.25% for 2013/14 and to 9.5% for 2014/15. The rate will continue to rise over the next few years — as noted in table below.
 
Since 1 July 2010, employers with fewer than 20 employees have been able to discharge their SG obligations by paying their superannuation contributions to the Small Business Superannuation Clearing House. The clearing house distributes the contributions to the various superannuation funds chosen by their employees.
 
Employers who do not pay the correct superannuation contributions by the due date must pay the superannuation guarantee (SG) charge.

Increase to minimum SG contribution

The minimum SG contribution was 9.25% of ordinary time earnings for 2013/14 and is 9.5% for 2014/15.
In the Federal Budget on 13 May 2014, it was announced that the minimum SG contribution will remain at 9.5% until 30 June 2018. The charge percentage will then increase by 0.5% each year until it reaches 12% from 1 July 2022.
 
Legislation
 
The Superannuation Guarantee (Administration) Act 1992 is the primary legislation affecting employers and details the administrative arrangements for the operation of the Superannuation Guarantee (SG) scheme, including assessment of the employer's liability, calculation of the SG charge, payment of the charge and distribution of payments received.
 
The Superannuation Guarantee Charge Act 1992 imposes a charge on employers who do not provide the required level of superannuation payments for employees.
 
 
Definitions
 
 
1. Definition of employer
 
With a few exceptions, the SG scheme applies to all employers in respect of their full-time, part-time and casual employees.This includes:
  • non-resident employers who have employees working in Australia
  • Commonwealth and tax-exempt Commonwealth authorities
  • tax exempt organisations
  • family companies, and
  • trusts paying salaries or wages.

An employer has SG obligations if the employer:

  • is responsible for paying salary or wages to another individual on a full-time, part-time or casual basis
  • makes payments to an individual under a contract that is wholly or principally for labour
  • makes payments to an individual for the performance of duties as a member of the executive body (whether as a board of directors or otherwise)
  • makes payments to a person to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, physical or any other personal skill; or
  • makes payments to a person for performing services in or in connection with the making of any film, tape, disc or any media broadcast.

Back to Definitions

2. Definition of employee

Generally an employee for SG purposes is an individual who receives payment in return for their labour or services, for example:
  • a driver who provides services for a courier company may be an employee either at common law or as someone engaged wholly or principally for labour; or
  • a person who is entitled to fees for the performance of duties.
3. Contractors
 
A person who receives a payment for work under a contract wholly or principally for their labour is an employee for SG purposes.
 
If the contract is not wholly or principally for labour (including physical work and intellectual and artistic efforts), then the person providing the services is treated as an independent contractor, rather than an employee, and the employer is not required to provide superannuation support.
 
A contract is principally for labour if more than half the value of the contract is for labour. In the ATO's view a person is an independent contractor, as distinct from being an employee, if the person:
  • is contracted to perform a specific task within a specific time frame for an agreed amount of money
  • has freedom in the way the task is performed
  • may delegate the performance of the work to another person
  • normally renders accounts payable by invoice
  • does not have the normal entitlements of employees such as long service leave, annual leave and sick leave
  • bears the responsibility and liability for losses
  • is generally not eligible for workers compensation from the principal
  • is generally available to perform services for the public at large.
An employer who fails to make the required contributions may be liable to the SG charge and other penalties. If the individual has been claiming a tax deduction for personal superannuation contributions, the Tax Office may issue amended assessments (going back two years) to the individual cancelling the deductions. Penalties may be imposed on the individual for the underpayment of tax resulting from the claiming of the deductions.
 
4. Independent agencies
 
Where a person's employment is arranged through an independent agency, the ATO's view is that:
  • in a service firm situation (eg a security firm that provides a security guard to its client), the worker is the common law employee of the service firm, not of the user client
  • in a labour hire situation (eg an organisation providing temporary workers such as typists to its client), the labour hire firm is the employer of the worker
  • in an employment agency situation (ie commission agent), the user client is the employer of the worker, not the employment agency.
 
5. Exemptions
 
An employer is not required to provide superannuation contributions for the following categories of employees:
  • employees receiving a salary/wage of less than $450 (before tax) in a calendar month
  • employees under 18 years of age working less than 30 hours per week
  • non-resident employees paid for work done outside Australia
  • resident employees paid by non-resident employers for work done outside Australia
  • employees receiving salary and wages under the Community Development Employment Program
  • some foreign executives holding certain visas or entry permits under the under the Migration (1993) Regulations
  • employees paid to do work of a domestic or private nature for not more than 30 hours a week, (eg part-time nanny or housekeeper)
  • members of the army, navy or air force reserve for work carried out in that role
  • employees temporarily working in Australia who are covered by a bilateral social security agreement – employers are required to keep a copy of the employee’s certificate of coverage to verify the exemption, and
  • resident employees of non-resident employers for work done outside Australia.

Since 1 July 2013, an employee’s age is not relevant in determining an employer’s liability to make SG contributions, the one exception being that contributions do not need to be made for an employee aged under 18 and working only part-time. Before 1 July 2013, an employer was not required to make SG contributions for an employee who was aged 70 or over.

 
6. Awards/certified agreements
 
Employers must comply not only with the superannuation guarantee rules, but also with superannuation requirements in an award or registered agreement.
 
From 1 January 2014, a modern award must include a term requiring an employer covered by the award to make SG contributions to a superannuation fund for the benefit of an employee covered by the award (Fair Work Act 2009, s149B). A modern award also includes a “default fund term” that applies where an employee does not choose a superannuation fund to which the employer should make SG contributions for the employee. The default fund term requires the employer to contribute to a superannuation fund that offers a MySuper product and that is specified in the award.
 
Where an award or agreement has superannuation entitlements more beneficial than those prescribed by the SG legislation, the employer must comply with the award/agreement.

There may be some important differences between what is required under the SG legislation and the award/agreement. For example:
  • different employees may be exempted from the two regimes
  • the earnings base may differ (for example, in relation to casual employees) the frequency of payments and age limits may vary.
7. Earnings base for calculation of contributions
 
Ordinary time earnings is generally the only earnings base for calculating the required SG contributions which, for 2014/15 is 9.5%. Employers are not generally allowed to use other earnings bases to calculate their liability — previously, employers may have been able to use an earnings base specified in an industrial award or legislation or an earnings base that they were using before 21 August 1991.
 
As an exception, employers may calculate their contributions using an earnings base specified in an industrial award or legislation if it is above an employee’s ordinary time earnings. Even if another earnings base is used to calculate their minimum contributions, their liability to SG charge will still be assessed against ordinary time earnings.
 
From 1 July 2009, payments in lieu of notice on termination of employment are included in an employee’s ordinary time earnings when calculating the employer’s minimum (now 9.5%) contribution. In contrast, such payments were excluded from ordinary time earnings before 1 July 2009.
 
The inclusion of payments in lieu of notice in ordinary time earnings creates the potential for double payment by employers for the period 1 July 2009 to 31 December 2009:
(a) once as a SG contribution to a fund; and
(b) again under s661 of the Workplace Relations Act (as continued by the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009) which requires the SG contribution to be paid to an employee as part of their compensation in lieu of notice of termination of employment.
 
 SG 
 No.
 Payments to an employee in relation to ...

 Salary or wages?

 OTE?
 Awards and Agreements
1 A simple overtime situation  Yes  No
2 Overtime hours - agreement prevailing over award  Yes  No
3 Agreement supplanting award removes distinction between ordinary hours and other hours  Yes  Yes
4 No ordinary hours of work stipulated  Yes  Yes
5 Casual employee -
shift loadings
overtime payments
 
Yes
Yes
 
Yes
No
6

Casual employee whose hours are paid at overtime rates due to a 'bandwidth' clause

 Yes  No
7 Piece-rates - no ordinary hours of work stipulated  Yes  Yes
8 Overtime component of earnings based on 'hourly driving rate' formula stipulated in award  Yes  Yes
Allowances  
9 Allowance by way of unconditional extra payment  Yes  Yes
10 Expense allowance expected to be fully expended  No  No
11
Danger allowance
 Yes  Yes
12 Retention allowance  Yes  Yes
13 Hourly on-call allowance in relation to ordinary hours of work for doctors  Yes  Yes
 Payment of expenses
14 Reimbursement  No  No
15 Petty cash  No  No
16 Reimbursement of travel costs  No  No
17 Payments for unfair dismissal  No  No
18 Workers' compensation —
Returned to work
Not working
 
 Yes
 No

 Yes
 No
Leave payments
19 Annual leave  Yes  Yes
Termination payments
20 Termination payments —
In lieu of notice
Unused annual leave


 Yes
 No


 Yes
 No
Bonuses
21 Performance bonus  Yes  Yes
22 Bonus labelled as ex-gratia but in respect of ordinary hours of work  Yes  Yes
23 Christmas bonus  Yes  Yes
24 Bonus in respect of overtime only  Yes  No - Where the industrial instrument provides for a span of ordinary hours, eg 6 am–6 pm, Monday to Friday inclusive, any work performed by a casual outside these hours is regarded as overtime and, therefore, not included in OTE.
 
The table above is an index to the examples and provides references to the relevant paragraphs in Ruling SGR 2009/2. The examples are not exhaustive and are only intended for general guidance.
 
8. Maximum contribution base
 
The legislation prescribes a maximum amount upon which the employer superannuation contribution is calculated (for the financial year 2014/15, $49,430 per quarter, for financial year 2015/16 - $50,810 per quarter). For example, an employer in 2014 who pays an employee a salary of $50,000 in a quarter is only required to make quarterly SG contributions calculated at 9.5% of $49,430. The ATO provides both the history of rates and current information.
 
9. When must contributions be paid?
 
Contributions must be made by the 28th day following the end of each quarter (that is, by 28 October, 28 January, 28 April and 28 July).
10. Record keeping
 
The employer must keep records that adequately explain transactions relating to its SG obligations. The records that must be kept include documents showing the level of support provided for each employee.
 
The employer can decide on the format that most suits the employer. As with income tax records, they must be kept in English and for five years. If the records are not in written form, (eg computer disc), they must be in a form that is readily accessible and easily converted into written English.
 
11. The SG charge
 
An employer who fails to make the minimum superannuation contribution required for a quarter is liable to pay SG charge to the Tax Office. The SG charge is made up of the amount of contribution that the employer underpaid, interest on that underpayment (10% from the beginning of the quarter) and an administrative charge. Additional penalties are imposed if the statement and payment do not reach the ATO by the due date.
 
An employer must self-assess this liability and send the SG charge and a SG statement setting out the details to the ATO by the 28th day of the second month following the end of the quarter.
 
An employer who makes SG contributions late may be able to offset those contributions against their SG charge liability for that quarter.
 
12. Choice of fund penalty
 
An employer who fails to make SG contributions in compliance with the choice of fund rules will be penalised by an increase in the employer’s SG liability for the quarter (called a 'choice penalty').
 
 
 

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