You’re hiring employees! What terrific news. But taking on employees leads to new responsibilities for you as the employer, and one of those responsibilities is employer super contributions.
Superannuation, more commonly referred to as “super,” is the money paid into a retirement fund to help your employees save for retirement. Superannuation rules for employers require that you pay eligible employees the mandatory super contribution, known as super guarantee (SG).
Here’s the employer super contributions checklist for new bosses:
Determine which employees are entitled to super
Pay the correct amount
Pay on time
Know where to pay
Keep detailed records
Now let’s look at each of these steps in detail.
1. Which employees are entitled to super?
The short answer is:
You must make employer super contributions for anyone over age 18 earning more than $450/month before tax.
But if only it were that simple. If your employees fall into any of these categories, it’s time to get super guarantee savvy:
- Employees over the age of 18 who earn at least $450 before tax per month
- Employees covered by the Hospitality Award who earn at least $350 before tax per month
- Domestic workers (carer, nanny, housekeeper) working for you 30 or more hours per week
- Workers on a temporary or working visa
One mistake new employers make is assuming they aren’t required to pay their employee’s super. Many new employers think these types of workers are exempt:
- Casual workers
- Temporary residents
- Domestic employees
Their misunderstanding and lack of accurate information can be costly. To understand your responsibilities from the start, the ATO has created the Super Guarantee Eligibility Tool to help you determine which of your employees are entitled to super.
Contractors and employer super contributions
The definition of contractors who are eligible for super is not always straightforward.
If a contractor runs their own business, invoices you for their services and has an ABN (Australian Business Number), they may be considered an employee for tax purposes.
The ATO’s Employee/Contractor Decision Tool will help you understand if you need to pay their super. If you’re still unsure, it’s best to get advice from the ATO or your accountant.
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2. Pay the correct amount
The mandatory employer super contribution, known as the super guarantee, is currently 9.5% of an employee’s ordinary time earnings (OTE). Each quarter, you’ll calculate the employee’s OTE and multiply by 9.5%. This is the minimum amount you are required to pay into their fund.
To make it easy, the Super Guarantee Contributions Calculator will tell you the amount you’re required to contribute.
Knowing what is considered OTE and what isn’t can be confusing. Generally, OTE includes:
- Basic salary for hours worked
- Shift loadings
- Annual leave loading
- Some bonuses and allowances
Overtime pay is usually not included.
Know the exceptions
Salary and wages are not the same as OTE. For example, overtime hours are considered salary or wages but not OTE, and therefore, not included in the super guarantee. For further reading, the ATO has a Payment-Type Table, which explains OTE in more detail.
3. Pay on time
Employer super contributions are paid at least four times a year. Some funds may require more frequent payments or monthly payments.
You can pay fortnightly or monthly, as long as you’ve paid the full amount due by the quarterly due date.
The quarterly due dates are:
Paying the wrong amount or paying late may mean you’ll be fined and required to pay the super guarantee charge (SGC).
You’re also responsible for paying any missed super contributions even if the employee is no longer working for you.
4. Know where to pay employer super contributions
You’ll make your employee’s super payment into either a complying super fund or a retirement savings account (RSA). To confirm a fund complies, use the Super Fund Lookup Tool.
Your employees may be eligible to choose their super fund. Once they tell you their desired fund, you have two months to start paying into the fund.
If your employee is not eligible to choose their fund or have not told you which fund they prefer, then you can pay into a fund of your choice by the due dates.
5. Use SuperStream
SuperStream is an electronic system that allows superfund payments and data to be transferred between employers, super funds and the ATO.
All employers should be using SuperStream to make employer super contributions. If you’ve used another system in the past, talk to your tax agent or bookkeeper to help you move to SuperStream.
6. Keep detailed records
To provide evidence that you’ve complied with your super obligations, keep records of the:
- Amount paid into on behalf of your employees
- Date paid
- Evidence that you offered fund choices
Super forms and related evidence must be kept for up to five years.
If you follow this checklist to comply with the mandatory super contributions, you’ll keep your business running smoothly and the ATO happy. Once you confirm which employees are eligible and their ordinary time earnings (OTE) for the month, the rest is easy.
For more information, the ATO offers a free online course. The course takes two hours to complete and will help you understand the importance of paying super guarantee, the steps to setting up a super contribution and the record-keeping requirements.
This post should not be taken as tax or financial advice. If you have questions about how the superannuation rules for employers apply to you, consult a financial professional.