Salary Sacrifice and Superannuation Guarantee payments

The Government has introduced legislation to tighten up the superannuation guarantee system for employers.

Proposed changes to salary sacrifice arrangements and superannuation guarantee payments

The new legislation which is based on the recommendations of the Superannuation Guarantee Cross-Agency Working Group will:

  • Ensure salary sacrificed super contributions cannot count against employer’s compulsory SG obligations; and
  • Ensure salary sacrificed super contributions do not reduce the base on which SG is calculated.

We do not anticipate that this new legislation will result in any significant changes for most employers, as they have been paying salary sacrifice contribution in excess of their superannuation guarantee obligations.

Employers may, however, need to change the way they are calculating their superannuation guarantee contributions if they have been excluding amounts salary sacrificed from the ordinary times earnings (or base) on which superannuation guarantee is calculated.

What are my superannuation guarantee obligations?

Super is money you pay for your workers to provide for their retirement.

Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages.

The minimum you must pay is called the super guarantee (SG):

  • The SG is currently 9.5% of an employee’s ordinary time earnings.
  • You must pay SG at least four times a year, by the quarterly due dates.
  • You must pay and report super electronically in a standard format, ensuring you meet SuperStream requirements.
  • Your super payments must go to a complying super fund – most employees can choose their own fund.

What happens if I have not met my superannuation obligations?

Employers also need to be aware that the ATO is using its extensive resources and data sharing abilities to increase its monitoring of superannuation payments. ATO superannuation guarantee review activity is increasing where employers have not met their superannuation obligations (either not paid their employees contributions or paid them late).

Where an employer makes late superannuation guarantee payments, the penalties are significant. Not only is the payment for the superannuation non-tax deductible, employers will also be required to pay superannuation guarantee shortfall charge (i.e. interest on the late payment – which is calculated from the time the payment should have been made up until the forms are lodged with the ATO notifying them of the breach) and an administration fee. If the employer does not voluntarily report the late superannuation payment as required by the ATO (using a superannuation guarantee charge surcharge statement – which can be completed electronically on the ATO website), and instead the ATO pursues the breach, additional non-compliance penalties of up to 200% of the charge may be applied.