The most common Super Guarantee (SG) mistakes
Payday Superannuation is on the horizon and with it, the risks to employers of getting things wrong and the ATO’s ability to detect shortfalls, will increase yet again. As well as other changes that we’re waiting to see legislation for, there will be additional reporting in Single Touch Payroll (STP) to ensure Ordinary Time Earnings (OTE) is captured. Making sure OTE is right is one of the most essential tasks for employers and one to keep refreshing as additional wage types arise.
The ATO has shared the most common errors it sees from employers:
Mismatched information preventing payments going through to the employee’s super fund – core data such as name, date of birth, tax file number and super fund account must be captured accurately and align to what is reported in STP.
Making payments late – bearing in mind employers currently have 28 days after the end of each quarter and this is going to be trimmed down to just 7 days, by the end of which funds must actually reach the employee’s super fund.
Calculating SG incorrectly – incorrect configuration of wage codes in the payroll system leads to entrenched errors that can accumulate to devastating effect. Regularly reviewing wage code configuration and testing payroll outputs is crucial to getting it right.
SG calculation issues
Here’s a rundown on where things are most likely to go wrong when calculating SG:
Failing to pick up bonuses for SG
Even when a bonus is entirely discretionary, such as a Christmas bonus, the ATO’s view is that it arises from work done in ordinary hours and therefore SG applies. Typically, to be excluded, a bonus must be clearly identified as relating to work done entirely outside ordinary hours. A practical solution may be to stipulate in advance that bonuses are inclusive of SG.
Incorrectly treating an amount as “overtime” and excluded from SG or picking up the wrong ordinary hours
Essential to determining OTE is establishing what “ordinary hours of work” are. It usually isn’t sufficient to stipulate that certain hours are “ordinary”. The additional hours should also be remunerated at a higher rate or otherwise be identifiable as a separate component of total pay. Mistakenly picking up a flat 38 or 40 hours without considering the terms of underlying agreements is a common error.
Not paying SG on payments to individual contractors where the payment is wholly or principally for their labour
SG extends beyond common law employment relationships and deems an individual who works under a contract wholly or principally for their labour to be an employee for SG purposes. Failure to pay SG on payments to individual contractors is one of the most common mistakes made by businesses and can often lead to claims from the affected individuals. Deeming provisions can also extend to entertainers, artists and sportspeople.
Incorrect treatment of annual leave loading
Annual leave loading will be part of OTE unless it can be shown that it’s paid to compensate employees for being unable to work overtime while on leave. This typically requires a specific clause in the relevant award or agreement, or a documented policy made available to employees that states the reason for the leave loading entitlement. This was an area of some controversy and the ATO allowed some leniency when its views on the issue were first clarified several years ago, but it would now be expected that most employers have taken action on this issue.
Failure to recognise reportable employer superannuation contributions (RESC)
Superannuation that can be influenced by the employee is reportable to the ATO as RESC. RESC can affect various individual obligations and benefits including Medicare levy surcharge, Division 293 tax and child support. To illustrate a common error, while salary sacrificed super is usually reported as RESC, many employers also give their employees the opportunity to cash out superannuation guarantee if it reaches the maximum contribution base, but do not report superannuation as required if the employee chooses to maintain super rather than cashing out. While this doesn’t give rise to an SG shortfall, penalties can arise from not meeting RESC reporting requirements and the impact on employees can be severe.
Salary packaging interaction considerations
When an employee salary sacrifices additional superannuation contributions, SG continues to be due on the pre-sacrifice income, and the sacrificed contributions do not count as employer contributions. However, this principle does not apply to the salary sacrifice of other benefits. It is necessary to determine the employer’s policy around how super will apply to salary packaging of items such as novated leases and car parking.
Potential overpayment issues
Superannuation overpayments can also arise from matters such as exceeding the maximum contribution base, paying SG on certain expense allowances and worker’s compensation where the employee is not working. However, an overpayment for one individual does not offset an underpayment for another. In practice, employers rarely seek to recover overpayments and therefore it’s important to get the treatment right from the outset to avoid issues later.
What should employers do?
Make sure your payroll system is operating perfectly within STP in terms of how information is tagged and reported.
Check the timeliness of contributions to funds including the effectiveness of clearing house processes.
Validate the robustness of processes to capture and update core employee data.
Confirm whether broader policies such as the documentation around the application of super to bonuses, leave loading and salary packaging need updating.
Consider the policy on cash out of superannuation and ensure all RESC is appropriately identified.
Consider whether the new obligation to report OTE needs further attention.
And watch this space to find out more as Payday Super legislation emerges.