The super guarantee charge (SGC) is relevant where an employer fails to meet super guarantee obligations either by paying employee superannuation entitlements late or not at all.
Who is entitled to superannuation?
An ‘employee’ as that term is defined in section 12 of the Superannuation Guarantee (Administration) Act 1992 is entitled to superannuation. Specifically, an employee for superannuation purposes is defined broadly to include:
- employees according to the ordinary meaning of that term
- a person who works under a contract that is wholly or principally for their labour
- certain other persons in certain positions or industries such as musicians, athletes, members of parliament etc.
- apprentices, trainees, labourers, trades assistants.
Whether a person is an employee involves a holistic view of the arrangement governing engagement of service, including whether the person brought in to produce a specific result. Note that the way the contract of service defines the person’s role (as either an employee or contractor) will be highly persuasive / determinative of the nature of the arrangement.
Wholly or principally for labour
There continues to be some uncertainty regarding the meaning of this term. However, broadly speaking it appears that a person is more likely under a contract FOR their labour where:
- the person is paid for work at an hourly rate
- there is a contract governing the engagement of the person
- the arrangement involves personally provided labour and skills which is the responsibility of the person engaged and may not be delegated
If a contractor is engaged to provide services and that entails a labour and non-labour component (e.g. a plumber providing labour and parts simultaneously), the contract will be ‘for’ labour where the labour component is predominant.
Note that a worker will not be an employee under either of the above tests if that person operates and is engaged through a company, trust or partnership.
When is superannuation due?
The due date for a fund to receive the superannuation is as follows:
For employee earnings between:
- 1 July – 30 September: 28 October
- 1 October – 31 December: 28 January
- 1 January – 31 March: 28 April
- 1 April – 30 June: 28 July.
Noting that if the 28th day is a non-business day, it must be received by the next business day.
How much superannuation?
The super guarantee percentage is currently 11% in the 2023-24 income year calculated based on ordinary time earnings. As will be discussed below, ordinary times earnings is a slightly narrower concept than salary and wages. The term is defined in section 6(1) of the Superannuation Guarantee (Administration) Act as follows:
(a) the total of:
(i) earnings in respect of ordinary hours (i.e. not overtime) of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment:
(A) a payment in lieu of unused sick leave;
(B) an unused annual leave payment, or unused long service leave payment, within the meaning of the Income Tax Assessment Act 1997 ; and
(ii) earnings consisting of over-award payments, shift-loading or commission; or
(b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the quarter–the maximum contribution base.
SGR 2009/2 provides further detail on the meaning of OTE compared with the concept salary and wages and is a resource worth reading through.
What to do when there is a failure to satisfy the super payment requirements?
If there is a failure to make the superannuation payment on time or there is a choice liability, the employer must lodge a Super Guarantee Charge Statement ‘SGC statement’ with the ATO and pay a superannuation guarantee charge.
Employers should keep in mind the following:
- The SGC statement and SG charge will apply where a super contribution is made on time but where there is a deficit in the payment. For example, if Marcela Pty Ltd is required to pay its employees superannuation at a rate of 11% per annum and instead pays superannuation at a rate of 10.5% per annum, the 0.5% deficit represents is a deficit that must be accounted for and rectified by the lodgement of the SGC statement and payment of the SG charge.
- There is nothing which prevents an employer from making payments more regularly than on a quarterly basis provided that the total super guarantee for the quarter is received by the superfund by the due date.
- The employee super contribution will only be considered to be made ‘on time’ if received by the super fund by the required date. The date of payment of super contribution is not relevant. Importantly, this principle applies to employers using a commercial clearing house. The date monies are received into the commercial clearing house is not relevant. However, there an administrative concession from the ATO in respect of employers using the small business superannuation clearing house. The SBSCH is available to businesses with 19 or fewer employees or with an annual aggregated turnover of less than $10 million. From an ATO compliance perspective, contributions are considered to be ‘received’ by the fund on the date accepted by the SBSCH. Refer to PCG 2020/6 for further information on this approach taken on the ATO.
- Certain funds, awards and contracts require payment of super more frequently than simply on a quarterly basis.
The SGC statement must be lodged and the SG charge paid within 1 month of a missed quarterly payment due date. For example, for the June quarter superannuation is due on 28 July meaning the SGC statement must be lodged and paid by 28 August. A separate form will need to be completed for each quarter in which there is a shortfall. The superannuation guarantee form is available online on the ATO website.
How to calculate the SG charge
The superannuation guarantee charge has three distinct components:
- The super guarantee shortfall amount (includes any choice liability)
- The nominal interest
- The administration fee
Separately, a general interest charge may apply.
Each of these components is considered below.
Super guarantee Shortfall
The shortfall amount is calculated based on ‘salary and wages’ instead of ‘ordinary times earnings’. It is very important to understand the distinction between the two keeping in mind that ordinary times earnings is a slightly narrower concept than salary and wages. For example, overtime hours for an employee will form part of salary and wages but will generally not be considered to be ‘ordinary times earnings’. The result is that the shortfall amount may be greater than expected.
Take as an example Thomas who is an employee and on occasion works overtime for his employer. Thomas earned $60,000 from standard hours worked and earned $10,000 from overtime hours worked. Unfortunately, Thomas’s employer continued to pay Thomas superannuation at the rate of 10.5% instead of 11% for the September 2023 quarter. The superannuation shortfall is calculated based on 11% of Thomas’ salary and wages, being $60,000 of standard hour payments plus $10,000 in overtime payments. This is instead of the shortfall being 11% of $60,000. Therefore, the shortfall = $350 (being $7,700 less $7,350) not $300 (being $6,600 less $6,300).
The employer must lodge a SG statement where there is a choice liability. The employer incurs a choice liability where any of the following ‘no choice contributions’ occur:
- Employees have not been provided with a Standard Choice Form within a certain timeframe.
- The super contributions have been made into an incorrect fund.
- If the employee commenced after 1 November 2021 and did not make the choice, the employer did not request stapled fund details or contribute to that stapled fund once notification was provided.
- A fee was charged to employees to make contributions to the particular nominated fund.
The choice liability is calculated as 25% of the SG shortfall (assuming no super contributions were made). For example, take John who employs Brooke in his business. For the quarter she earns $40,000 in base salary and $10,000 in overtime (which in this instance is exempt from the definition of ‘salary and wages’). With the SG percentage being 11%, John is required to contribute $4,400 into Brooke’s nominated super fund. However, he accidentally making the contribution into another fund (not Brooke’s nominated super fund). In this instance, the choice liability is calculated as 25% of the salary and wages (not ordinary times earning), being $50,000. Therefore, the choice liability is $12,500. However, note that the choice liability is now capped at $500 per employee per ‘notice period’. Therefore, the choice liability in this instance will actually be $500.
There is a nominal interest charge of 10% per annum on the shortfall which begins to accrue from the first day of the relevant quarter that the SG was not paid and runs until the later of: (i) the due date of the SG statement and (ii) the day the SGC statement is actually lodged.
There is a fixed administration fee of $20 per employee, per quarter.
General interest charge
A general interest charges applies in relation to the period in which the employer fails to lodge and pay a SGC statement by the required time. The GIC annual rate for the quarter ending September 2023 is 10.90%.
How are late payments treated?
An eventual late payment can be put towards: (i) the reduction of a SGC liability, or (ii) a future super contribution obligation.
In order to ‘offset’ a late payment against a SGC liability the employer is required to:
- Make the payment to the employee super fund
- Make the payment before the time of a SGC assessment
- Make the offset election in the SG statement
- Lodge an approved form requesting the offset with the ATO within 4 years of the original SGC assessment
- Advise the ATO of the date of the late payment
The late paid super contributions may be carried forward to a future quarter provided that quarter does not commence later than 12 months from payment date. The late paid contribution must also be carried forward as a contribution to the same employee. The carried forward contribution is deductible in the year it is received by the employer’s super fund. Obviously, late payments which are used to offset the SGC may not be carried forward and used as a contribution in a future period.
Is the super guarantee charge deductible?
The super guarantee charge (with its three components) and any late payment to reduce the liability is not tax deductible. However, the general interest charge is deductible.
What are the penalties for non-compliance?
If the employer fails to rectify a superannuation shortfall by neglecting to lodge a correct SGC statement and paying the SG charge, the following additional penalties can apply (along with various other penalties):
- ‘Part 7’ penalty
- Administrative penalty
- Director penalty
Part 7 penalty
A Part 7 penalty involves a maximum penalty of 200% of the super guarantee charge where a SGC statement is not lodged before an ATO audit action commences against the employer.
The administrative penalty involves a maximum penalty of 75% of the shortfall amount. It may be issued where false statements or information is provided to the ATO relating to employee entitlements.
A director penalty involves the director of a company being held personally liable for an outstanding SGC liabilities of the company.
Should I pay superannuation early?
There are some clear benefits to paying superannuation early. Firstly, it lessens compliance problem risks e.g. a missed payment date or a delay in the fund receiving contributions. Secondly, a deduction for the contribution may be brought forward (with limitations) to an earlier income year (with limitations) to reduce taxable income. Thirdly, the employee wins. The balance of the employee’s superfund would expectedly grow more quickly where contributions are made earlier to the fund which can invest.
Plans for the legislative change in the future
Please be aware that the government has recently announced plans to align the superannuation payment due date with the employee payment due date. The proposal is not yet law but is planned to commence from 1 July 2026.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.