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Superannuation guarantee (SG)

Section: 1.1

The superannuation guarantee (SG) is the minimum quarterly superannuation support that an employer must provide for its employees in order to avoid paying the superannuation guarantee charge (SGC). Employers are generally entitled to claim a tax deduction for the SG support that they provide to employees.

Who does it apply to?

Generally employers are those who:

  • exercise some control over how, when and where work is done
  • are responsible for payment of wages or salary, or
  • have the power to dismiss or hire.

It includes employers who are tax-exempt organisations and family companies and trusts that pay salary and wages.

Who is an employee for SG purposes?

As well as applying to those who fall within the ordinary meaning of employee, the Superannuation Guarantee Administration Act 1992 (SGAA) expands the definition of employee to generally include people who:

  • are paid for performing duties as the director of a company
  • are working under a contract that is wholly or principally for labour
  • are paid to perform or present as an artist, musician, entertainer or sports person
  • are members of State or Federal Parliament or the NT or ACT legislative Assembly.

A director is not automatically considered to be an employee of a company. Directors must be entitled to payment for their services to come within the expanded SG meaning of employee. However, the ATO considers that non-paid directors are employees if they:

  • meet the definition of employee in the SGAA, or
  • are engaged in producing the employer's assessable income, or
  • are an Australian resident who is engaged in the business of the employer.

Contractors are generally considered employees for SG purposes if the contract is wholly or principally for labour. In Superannuation Guarantee Ruling SGR 2005/1, the ATO indicates that a contract will be considered wholly and principally for labour (and the contractor is therefore an employee for SG purposes) where the contractor:

  • is remunerated (wholly or principally) for their labour or skills, and
  • must perform the contractual work personally (ie there is no right of delegation), and
  • is not paid to achieve a result.

For further guidance on the treatment of contractors see: ATO SGR 2005/1: Who is an employee? Available at law.ato.gov.au. The ATO has also developed an employee/contractor decision tool, available at ato.gov.au.

Exemptions

Salary or wages paid to the following employees are exempt from SG as follows:

  • Employees paid less than $450 in a month.
  • Part-time employees under 18 years of age (working 30 hours, or less, each week).
  • Resident employees paid by non-resident employers for work done outside Australia, unless the employee is covered by an international social security agreement.
  • Non-resident employees paid solely for work undertaken outside Australia.
  • Foreign executives who hold certain visas or entry permits, as prescribed by the Regulations.
  • Employees paid for work of a domestic/private nature for not more than 30 hours each week, eg part-time nanny or housekeeper.
  • Employees who opted out of receiving SG contributions by making an election under old section 19(4) of the Superannuation Guarantee Administration Act 1992 (SGAA), prior to 1 July 2007, because their accumulated super entitlements or actual payments received exceeded their pension RBL. These elections were and remain irrevocable. Such elections cannot be made on or after 1 July 2007 with the abolition of RBLs and the repeal of section 19(4) from that date.
  • Employees employed under the Community Development Employment Program.
  • Employees in their capacity as members of the Defence Force Reserves.

Age limit for SG abolished

From 1 July 2013, there is no age limit for employees to be eligible for SG. Prior to 1 July 2013, employers were not required to pay SG contributions in respect of salary or wages paid to employees aged 70 or over.

SG Payment rate

For each quarter of the 2017-18 financial year, an amount equal to 9.5% of each eligible employee's ordinary time earnings (OTE) must be paid to a complying super fund.

The SG payment rate is legislated to gradually increase to 12% by 1 July 2025 as follows:

Financial year SG rate (%)
2017-18 9.50
2018-19 9.50
2019-20 9.50
2020-2021 9.50
2021-2022 10.00
2022-2023 10.50
2023-2024 11
2024-2025 11.5
2025-2026 and future years 12

Ordinary time earnings

An employer is required to pay SG contributions based on an eligible employee's ordinary time earnings (OTE), which may not include all of the remuneration received by the employee. However, this does not extend to the use of lower earnings bases that applied prior to 1 July 2008.

Employee Remuneration OTE          Salary or wages
Salary, wages Yes Yes
Commission Yes Yes
Casual employee -Shift loadings
Casual employee - Overtime
Yes
No
Yes
Yes
Shift loading Yes Yes
Benefits subject to fringe benefits tax (FBT) No No
Work paid at piece-rates - no ordinary hours stipulated Yes Yes
Workers' compensation payments -
Returned to work
Not working
Yes
No
Yes
No
Director's fees Yes Yes
Payments for performance in, or provision of services in relation to, entertainment, sport, promotions, films, discs, tapes, TV or radio Yes
 
Yes
 
Payments to a contractor who is an employee under the Superannuation Guarantee Administration Act
(labour component of payments only)
Yes
 
Yes
 
Payments for domestic or private work under 30 hours per week No No
Overtime
Simple overtime situation, ie work in excess of ordinary hours of work No Yes
Overtime where agreement prevails over award -
Ordinary hours retained
Distinction between ordinary and other hours removed

No
Yes

Yes
Yes
Overtime where no ordinary hours of work specified Yes Yes
Bonuses
Performance bonus Yes Yes
Christmas bonus Yes Yes
'Ex-gratia' bonus paid in respect of ordinary hours of work Yes Yes
Bonus paid in respect of overtime only No Yes
Allowances and expenses
Expense allowance expected to be fully expended No No
Allowance by way of unconditional extra payment Yes Yes
Danger allowance Yes Yes
Retention allowance Yes Yes
Doctors' hourly on-call allowance in relation to ordinary hours of work Yes Yes
Reimbursement of expenses, including travel costs and petty cash No No
Leave
Pay for annual, long service or sick leave taken Yes Yes
Annual leave loading No Yes
Pay for parental leave, including adoption leave No No
Pay for leave from usual employment to engage in eligible community service (eg jury duty, SES service) or
Defence Force Reserves service
No No
Payments on termination of employment
Payments for unfair dismissal No No
Payments in lieu of notice Yes Yes
Payments of unused annual, long service or sick leave No Yes
Redundancy payments No No
Other payments
Dividends No No
Partnership and trust distributions No No
Payments for entering a restraint of trade agreement No No

Source: www.ato.gov.au and SGR 2009/2.

Note: We recommend that employers seek legal advice on what constitutes OTE to ensure SG obligations are met. Penalties for not meeting SG obligations may be costly.

Maximum earnings base
The maximum earnings base of an employee for which an employer is obliged to make SG contributions is $52,760 per quarter ($211,040 pa) for 2017-18 (indexed to AWOTE on 1 July each year).

Where an employee is being paid by two or more different employers, a separate maximum earnings base applies for each employer.

Minimum earnings base

The minimum earnings base for which an employer is obliged to make SG contributions is $450 (gross) per month. (This figure is not indexed.)

Salary Sacrifice and SG

The amount of SG contributions an employer is required to pay in relation to an employee is calculated based on their OTE. By entering into a salary sacrifice arrangement (SSA) an employee will reduce his or her OTE and will reduce the amount of SG their employer is required to pay. An employer could still make contributions based on the employee's pre-salary sacrifice earnings; however, they are not obliged to do so under SG laws.

Unless the employee is covered by an award or agreement that either specifies the amount of employer super contributions payable or that SG contributions are based on pre-sacrifice salary, an employer can use the amount contributed under a salary sacrifice arrangement to a complying superannuation fund to meet its SG obligation. If the salary sacrificed super contribution is more than the SG contributions the employer is required to pay, the employer is not required to make further super contributions to meet its SG obligations.

Example

Clare currently earns a salary of $50,000 and is thinking of making salary sacrifice contributions of $10,000 for the current financial year. The impact of this action on her employer's SG obligations is as follows:

  Before After
Annual remuneration $50,000 $50,000
Salary sacrifice Nil $10,000
Ordinary time earnings $50,000 $40,000
9.5% employer SG (2017-18) $4,750 $3,800
Salary sacrifice paid by employer Nil $10,000
Amount the employer has to pay to meet SG obligations $4,750 Nil

It is important to confirm that a client's entitlements will not diminish under the salary sacrifice agreement and SG is paid at pre-salary sacrifice rates. This investigation should take place before the salary sacrifice arrangement commences, and checked after implementation.

Timing of SG contributions

To count toward meeting an employer's SG liability during a quarter, a contribution must be made by no later than 28 days after the end of each quarter as shown in the following table.

SG quarter 2017-18 Cut-off date for SG contributions
1 July - 30 September 28 October
1 October - 31 December 28 January
1 January - 31 March 28 April
1 April - 30 June 28 July

Employer contributions made before the start of a quarter can count toward meeting the employer's SG obligations in that quarter, provided the contributions:

  • Are made not more than 12 months before the beginning of the quarter
  • Have not been used to meet the employer's SG obligations during another quarter.

Last modified: Thursday, July 13, 2017