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If you are a new employer, the question “how does superannuation work?” may have crossed your mind. Indeed, superannuation is money an employer pays to provide for their employees’ retirement. In Australia, superannuation laws require employers to make super contributions on behalf of their employees in certain situations. Some modern awards and registered agreements also contain additional terms for superannuation. Superannuation payments are tax-deductible against your business income.

This article will help you understand superannuation by answering the commonly asked questions:

  • Do I need to pay superannuation?
  • How much superannuation do I pay?
  • Where do I pay superannuation?
  • When do I need to pay superannuation?
  • What happens if I do not pay superannuation on time?
  • What superannuation payment records do I need to keep?

Do I Need to Pay Superannuation?

Generally, if you pay $450 or more (before tax) to your employee in a calendar month, you need to pay super contributions into their super account in addition to their wages.

It is important to remember that superannuation may be payable regardless of whether your employee is a:

  • full-time, part-time or casual employee;
  • temporary resident;
  • company director; or
  • family member working in your business.

If your employee is a domestic or private worker, such as a nanny, carer or housekeeper, or is under 18 years of age, they must work for more than 30 hours per week to qualify for super payments.

However, you only need to pay your contractors if they are wholly or principally engaged for their labour. A contract may be considered ‘wholly or principally for labour’ if the contractor:

  • is paid mainly for their labour (i.e. more than half the dollar value of the contract is for their labour);
  • is paid for their personal labour and skills (including physical, mental or artistic labour), rather than to achieve a result; and
  • performs the work personally and cannot delegate the work.

How Much Superannuation Do I Pay?

The super guarantee (SG) is the minimum amount of super you must pay into your employee’s super account. The SG is currently 9.5% of an employee’s ordinary time earnings (OTE). Further, OTE is the amount your employee earns for their ordinary hours of work. OTE includes commissions, shift loadings, allowances and bonuses, but excludes overtime payments.

Example of Superannuation Calculation

During the last quarter, your employee’s OTE was $20,000. The minimum super you must pay into their super account for the quarter is $20,000 x 9.5% = $1,900.

Where Do I Pay Superannuation?

You must pay super to a complying super fund. Indeed, most of your employees can choose their super fund. Your employee is eligible to choose their super fund if they are:

  • employed under an award or registered agreement that does not require super support; 
  • not employed under any award or registered agreement; or
  • employed under an enterprise agreement or workplace determination made on or after 1 January 2021.

Because of this, you need to allow employees eligible to choose a super fund with a standard choice form (or equivalent) within 28 days of their commencement date unless they have already given you the details of their chosen fund.

However, if your employee is not eligible to choose or does not make a choice, you should pay the super into your employer-nominated fund.

When Do I Need to Pay Superannuation?

You should calculate the SG for your eligible employees from the day they start with you. From that point, super payments need to be made at least four times a year. Therefore, your employee’s super fund should receive payments by the quarterly due dates. The current quarterly due dates are set out below.

Quarter

Period

Due Date

1

1 July – 30 September

28 October

2

1 October – 31 December

28 January

3

1 January – 31 March

28 April

4

1 April – 30 June

28 July

You can choose to make super payments more frequently than once a quarter, provided your total SG obligation for the quarter is received by your employee’s super fund before the due date.

What Happens If I Do Not Pay Superannuation On Time?

You must pay the superannuation guarantee charge (SGC) and lodge an SGC statement to the Australian Taxation Office (ATO) if you do not pay your employee’s super on time and to the correct fund. The SGC is not tax-deductible and consists of:

  • SG shortfall amounts;
  • interest (currently 10%) on the SG shortfall amounts; and
  • an administration fee of $20 per employee, per quarter.

What Superannuation Payment Records Do I Need to Keep?

You must keep records that show the amount of SG you paid for your employees and how it was calculated. Furthermore, you should show that you have offered your eligible employees a choice of a super fund. Additionally, it is important to remember that all records must be written in English and kept for at least seven years.

Key Takeaways

In conclusion, you need to ensure that you understand and comply with your requirements to pay super. The ATO provides a helpful list for employers to check their super obligations. You should check you are paying:

  1. super to all eligible workers – your employees who are paid $450 or more (before tax) in a calendar month are entitled to super, as well as some contractors;
  2. the correct amount – currently, you need to pay a minimum of 9.5% of your employee’s ordinary time earnings;
  3. to your employee’s chosen super fund, or if your employee does not make a choice, into your employer-nominated fund; and
  4. on time – you need to pay super at least quarterly otherwise you are liable to pay the superannuation guarantee charge.

You should also ensure you are checking accurate records. This is because records show that you have complied with your super obligations and need to be kept for seven years. If you have any questions about your obligations to pay super, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is superannuation?

Superannuation is the money an employer pays to provide for their employees’ retirement. Generally, if you pay $450 or more (before tax) to your employee in a calendar month, you need to pay super contributions into their super account in addition to their wages. However, additional factors should be considered.

How do I need to record that I have paid superannuation?

You must keep records that show the amount of super guarantee you paid for your employees and how it was calculated. You also need to keep recording showing you have offered your eligible employees a choice of a super fund. These records must be written in English and kept for at least seven years.

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