While it’s unlikely to result in significant changes for businesses that have been paying salary sacrifice contribution in excess of their superannuation guarantee obligations, recent government legislation has tightened up the superannuation guarantee system for Australian employers.
Salary Sacrificing And Superannuation
Salary sacrifice is an arrangement between employee and employer whereby a portion of the employee’s salary is forfeited in return for benefits of comparable value. Such as super fund contributions.
Although these contributions result from an employer “sacrificing” a share of their salary, they are still classed as employer super contributions.
As such, sacrificing salary for super contributions in this fashion reduces the amount of super guarantee contributions an employer is legally required to make on behalf of the employee. Unless terms of the employee/employer agreement state otherwise.
Salary sacrificed contributions are taxed in the superfund at a maximum rate of 15%. But this sacrificed component of your salary is not counted as assessable income for tax purposes.
The Superannuation Guarantee Cross-Agency Working Group
For years, a legal loophole existed that would allow arrant employers to unfairly reduce superannuation guarantee obligations for employees making salary sacrifice contributions into their super accounts.
In an effort to close the loophole, the Government established the Superannuation Guarantee Cross-Agency Working Group which consisted of senior representatives from the ATO, Treasury, Department of Employment, ASIC and APRA in December 2016.
Key recommendations from the Working Group led to a bill that now ensures:
- Employers pay workers their full entitlements
- An individual’s salary sacrifice contributions cannot reduce their employer’s superannuation guarantee obligation
- Salary sacrificed super contributions do not reduce the bas on which superannuation guarantee is calculated
In addition, recommendations from the Working Group has caused the ATO to increase its focus on superannuation guarantee compliance across the board.
Information sharing across agencies has improved. And a renewed commitment to protecting employee rights and entitlements has leveled the playing field for employers across Australia.
If employers have been excluding amounts of salary sacrificed from the ordinary times earnings, or base, on which superannuation is calculated, they may need to update their method of calculating superannuation guarantee obligations.
What Are An Employer’s Superannuation Guarantee Obligations?
Superannuation is money an employer pays workers to provide for their retirement. It’s a compulsory contribution made on behalf of all eligible employees.
In general, superannuation is paid on top of wages to any employee making $450 or more each calendar month. The minimum amount an employer is obligated to pay is known as the “super guarantee”.
The super guarantee charge is set on a percentage of each employee’s Ordinary Time Earnings (OTE), which can include the employee’s regular wage plus any shift loadings, commissions, paid leave and allowances.
- The super guarantee rate is set by the Australian Government
- 9.5% is the current super guarantee rate
- Super guarantees must be paid quarterly (four times a year)
- Payments must be paid and reported electronically
- Payments must be made to a complying super fund
What Happens If An Employer Does Not Meet Their Super Guarantee Charge Obligations?
Employers need to be aware that the ATO uses its extensive resources and vast data sharing capabilities to monitor superannuation payments. Strict ATO superannuation guarantee review activity is on the rise where employers have either not paid, or been late in paying, their required superannuation obligations.
Significant penalties apply when employers are late to make superannuation guarantee payments.
A superannuation guarantee shortfall charge is essentially interest that is levied on the late payment. The shortfall charge is calculated from the time the payment was meant to be paid up until all forms notifying the ATO of the breach are lodged.
An administration fee also applies.
If an employer is late with meeting superannuation obligations, it is in their best interest to voluntarily report the breach electronically to the ATO using a superannuation guarantee charge surcharge statement available from the ATO’s website.
Otherwise, if the ATO is made to pursue the payment breach, additional non-compliance penalties of as much as 200% of the charge may be applied.
Demystifying Salary Sacrificing And Superannuation
The Central Coast accounting experts at Kennedy Barnden have the answers to your salary sacrifice and superannuation guarantee payment questions. We offer a full range of accounting services. Get in touch today to learn more.