The Superannuation Guarantee Charge (SGC) is a non-deductible penalty imposed on employers who do not pay an employee’s superannuation guarantee on time. It is made up of SG shortfall amounts, interest on those amounts (currently 10%) and an administration fee of $20 per employee per quarter.
According to the ATO’s most recent figures, there was an estimated $2.4 billion of unpaid superannuation for the year ended 30 June 2018.
Whilst this legislation is rightfully aimed at both reducing and recovering this gap, it’s common for employers – who think they have done all the right things – to be unaware of issues with their payments until it’s too late.
It’s easy for employers to be caught unaware
In a recent example, the issue with SGC payment became apparent when the employer was refunded an amount paid to a clearing house on behalf of an employee due to an incorrect superannuation account number.
The fund details had been provided in writing by the employee on the superannuation standard choice form, but the employee had made a mistake with the account number. As a result of this error, the employer was penalised in the following ways:
- As the superannuation was not received by the employee’s fund prior to the due date, the superannuation contribution became non-deductible to the employer.
- A superannuation guarantee charge statement needed to be prepared and lodged.
- The client paid a $20 administration fee on lodgement of the superannuation guarantee charge statement.
- Interest was charged to the employer at 10%. It is important to note that in this scenario, interest is not charged from the time the payment was due to be made, but instead from the first day of the relevant quarter until the time the superannuation guarantee charge is paid.
- The superannuation guarantee charge is calculated differently to the regular superannuation guarantee. Usually the employer will need to pay 9.5% on an employee’s ordinary times earnings which excludes overtime. However, the superannuation guarantee charge is calculated on an employee’s total gross wages including overtime, resulting in a much higher amount of superannuation payable.
The interest charges and the calculation of SGC on total gross wages are the main reasons why this legislation can be unfair on the 96% of employers who genuinely believe they are doing everything necessary to calculate and pay their superannuation guarantee liabilities on time. Simple errors – like incorrect account numbers being entered on forms – can have significant financial impacts to employers, such as loss of a tax deduction, interest charges and an increased superannuation liability.
Currently, there is no avenue to appeal the superannuation guarantee charge. Legislation stipulates that it must apply and does not allow any discretion for the Commissioner of Taxation to overrule it or provide exemptions.
Timing of payments can also create issues
There are also other traps that can result in employers being subject to the superannuation guarantee charge – mainly related to timing of payments.
Many employers are of the mistaken belief that their superannuation liability needs to be paid within 28 days after the end of the quarter. However, the payment must be received by the employees’ superannuation fund by this date, not the clearing house that you make payment to. This means, for example, that if an employer makes payment to a clearing house before the end of the quarter but the clearing house doesn’t process the payment in time, the employer may lose the deductibility of their payments and be subjected to interest charges and an superannuation liability on total gross wages.
There is an exception to this situation if you use the Australian Taxation Office’s Small Business Superannuation Clearing House (SBSCH). When payments are made through this clearing house, obligations will be met once payment is received by the SBSCH. However, only employers with fewer than 20 employees are eligible to use this service.
Another important timing consideration to remember is that there is a penalty for not providing new employees with a standard choice form (or equivalent) within 28 days of their start date, unless they give you details of their chosen fund first. If employees do not provide you with their superannuation details prior to the due date for payment of their superannuation guarantee, it needs to be paid into your default fund.
Five tips to help you to avoid paying penalties on the SGC
The following five steps will help you to minimise the risk of errors and avoid penalties:
- Pay the superannuation guarantee liability more frequently than quarterly. If superannuation is paid weekly, fortnightly or monthly, you can identify these problems in most instances well ahead of the due date.
- Make a superannuation payment for new employees after their first pay to ensure that their superannuation details are correct.
- Be aware of the cut off dates your clearing house stipulates for them to submit payments to the appropriate funds, as these are usually 14 days before the actual due date.
- Act quickly if you do miss a payment. The superannuation guarantee charge statement is due one calendar month after the superannuation guarantee due date. There is an additional penalty that may be applied if the form is lodged late. The maximum penalty is 200% of the amount of superannuation guarantee charge payable.
- If superannuation payments are made late or received by the clearing house after the due date, you may be able to apply them against future superannuation liabilities for that employee.
Don’t forget: If the director of a company that fails to meet an SGC liability, they automatically become personally liable for a penalty equal to the unpaid amount. There is no timeframe on how far the Australian Taxation Office can go back and review compliance with superannuation legislation – so it’s a good idea to review your superannuation payment processes now to ensure that you are up to date with your obligations.
Please contact us if you require any assistance with managing your superannuation guarantee matters.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.