Heather Moore – Inside Small BusinessTax and Business Advisor
The costly consequences of missing a super payment
If you run a business, there are four dates you need to revolve your year around, or the consequences could be costly: 28 October, 28 January, 28 April and 28 July, the four payment deadlines in the year for Super Guarantee payments.
In the past many employers did not meet their obligations and suffered no repercussions, however, the landscape has changed. The rate is higher, more employees are eligible, and the ATO uses real-time data through the Single-Touch-Payroll system to spot late or underpayments.
Getting it right has never been more crucial for business owners, who face some serious consequences if they do not pay the Super Guarantee for their employees by the relevant deadline.
- Being hit with a Super Guarantee Charge (SGC).
- Tax deductions denied for any late payments.
- Additional paperwork and lodgements.
The calculation of this charge is similar to the calculation of Super Guarantee but there are some notable differences. The SGC formula includes the following components:
- The employee’s salary or wages subject to the SG.
- A nominal interest component, which is currently set at a rate of 10 per cent per annum.
- An administration fee per employee, which is currently $20 per employee per quarter.
If you lodge your SGC form late, you will be liable for an additional penalty, which can be up to 200 per cent of the SG shortfall.
Importantly, the “interest clock” for the nominal interest component of the SGC does not stop running until the required SGC forms are lodged with the ATO, even if the SG owed was paid at an earlier date.
If an employer pays the SG late then lodges the SGC forms, there is an offset to reduce the charge payable.
All charges collected by the ATO are disbursed to each employee’s respective superfund accounts.
Ordinary time earnings vs salary and wages
An important distinction between the two calculation methodologies is that SGC is chargeable on all salary and wages, including overtime. Usually, the employer does not pay Super Guarantee on overtime.
This distinction can have huge financial implications for a business where there are high levels of overtime worked.
Non-tax deductible Super payment
Any amount of SG paid late cannot be claimed as a tax deduction by the employer, including any SGC payable by the employer.
The impact on the business is significant. For a small business operated through a company, the denial of the tax deduction effectively increases the cost of the employee super guarantee by 25%, without even considering the additional penalties, fees and interest.
Administrative penalties and interest
The ATO (Australian Taxation Office) may impose penalties for failure to lodge SGC statements or for providing false or misleading information, in addition to the charges.
The director of a company who fails to meet an SGC liability in full by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
When an SGC liability remains outstanding, a director penalty notice may be issued. This enables the start of legal proceedings to recover the penalty. Even without issuing a notice, the penalty can be collected by other means – for example, by withholding a tax refund.
It’s crucial for employers to understand their obligations. Failing to pay the super guarantee for employees by the relevant deadline for a quarter can have significant financial and legal consequences.
One simple suggestion is to pay the SG for employees every month or every payrun, rather than waiting until the deadline for the quarter, reducing the risk of a late payment. Speak to your accountant or tax agent to ensure your system is fit for purpose and to make any improvements you can, to avoid getting caught out.