Employer super issues
Superannuation guarantee (SG)
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.
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 2018-19 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 (%)|
|2025-26 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.
The table below shows the types of employee remuneration that are included in OTE.
|Employee remuneration||OTE||Salary or wages|
|Casual employee -
|Benefits subject to fringe benefits tax (FBT)||No||No|
|Work paid at piece-rates - no ordinary hours stipulated||Yes||Yes|
|Workers' compensation payments -
|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 SGAA (labor component of payments only)||Yes||Yes|
|Payments for domestic or private work under 30 hours per week||No||No|
|Simple overtime situation (i.e work in excess of ordinary hours of work)||No||Yes|
|Overtime where agreement prevails over award -
|Overtime where no ordinary hours of work specified||Yes||Yes|
|'Ex-gratia' 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|
|Doctor's hourly on-call allowance in relation to ordinary hours of work||Yes||Yes|
|Reimbursement of expenses, including travel costs and petty cash||No||No|
|Pay for annual, long service or sick leave taken||Yes||Yes|
|Annual leave loading - demonstrably referable to a loss of opportunity to work overtime||No||Yes|
|Annual leave loading - all other||Yes||Yes|
|Pay for parental leave, including adoption leave||No||No|
|Pay for leave from usual employment to engage in eligible community service (e.g. jury duty, SES duty) 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|
|Partnership and trust distributions||No||No|
|Payments for entering a restrain 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 and minimum earnings base
The maximum earnings base of an employee for which an employer is obliged to make SG contributions is $54,030 per quarter ($216,120 pa) for the 2018-19 financial year (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.
The minimum earnings of an employee for which an employer is obliged to make SG contributions is $450 (gross) per month. This figure is not indexed.
Maximum earnings base and concessional contribution cap
In 2018-19, if a person is earning $216,120 or more, an employer is only required to provide $20,531.40 in SG contributions over the year, based on the current maximum earnings base of $54,030 per quarter. This amount is within the current concessional contribution cap.
Due to the slight differences in indexation of the concessional contributions cap and the maximum earnings base, in future years the contributions required using the maximum earnings base will exceed the concessional contributions cap.
In future years, if the maximum earnings base for a quarter effectively requires the employer to make excessive concessional contributions for the employee, the maximum earnings base is reduced to the amount that would not result in excess concessional contributions.
|The reduced maximum earnings base is determined by the following formula:
Concessional contributions x 100/9.5 x 1/4
With the current concessional contributions cap and charge percentage as at 1 July 2018, this would occur if the maximum contribution base for the quarter is greater than $65,789.47.
This change affects whether an employer will be subject to the superannuation guarantee charge if they do not make superannuation contributions or sufficient contributions for an employee. It does not limit employers from making contributions or alter the terms of an employee's remuneration.
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.
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:
Tip: 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 sacrifices rates. This investigation should take place before the salary sacrifice arrangement commences, and checked after implementation.
At the time of writing, the Treasury Laws Amendment (improving Accountability and Member Outcomes in Superannuation Measures No.2) Bill 2017 is before Parliament. If made law, this bill would ensure that, from 1 July 2018, an individual's salary sacrifice contributions cannot be used to reduce an employer's minimum superannuation guarantee (SG) contributions.
From 1 July 2018, it is proposed that:
- amounts an employee salary sacrifices to superannuation will no longer be permitted to reduce an employer's SG obligation
- the 9.5% SG obligation will apply to an employee's 'ordinary times earnings base' which will be OTE plus any salary contributions.
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 2018-19||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|
While SG contributions made between 1 July 2018 and 28 July 2018 may count towards the employer's SG obligations for the April to June 2018 quarter, any SG contributions made between 1 July 2018 and 28 July 2018 will count towards the employee's concessional contributions cap for 2018-9.
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: Tuesday, November 20, 2018