The rules around paying super for your employees have changed in the past few months. Mark Chapman, Director of Tax Communications at H&R Block, has the low-down on your new obligations.

One of the responsibilities that comes with owning your own business is that you are liable for paying your employee’s super contributions.

Each pay, you need to account for superannuation at a rate of at least 10.5 per cent of each employee’s “ordinary time earnings” (the rate has recently gone up – it was 10 per cent until 30 June 2022) on top of what you actually pay them. In other words, if you pay someone $50,000 per year, you need to account for super at a rate of $5,250 per annum in addition to the $50,000 wage cost.

The new rate must be used for payments you make to employees on and after 1 July 2022, even if all or part of the pay period is for work done before 1 July.

The recent increase to 10.5 per cent isn’t the end of the journey. It’s simply a staging post to the eventual rate of 12 per cent by 2025, with a series of annual increases of 0.5 per cent occurring between now and then.

Who do you need to pay super for?

Super needs to be paid to all types of employees including:

• Full-time employees
• Part-time employees
• Casual employees

Temporary residents are also eligible for super.

You are liable for super for all employees who are:

• Over 18 years, or
• Under 18 years and works over 30 hours a week

Prior to 1 July 2022, superannuation guarantee payments only needed to be made for employees who were paid more than $450 before tax in a month. This $450 limit was removed from 1 July 2022. That means employers now need to make quarterly super contributions for all staff who meet the criteria above. Even for low-income employees earning less than $450 per month.

Any new employee needs to fill out a standard choice form. If they don’t complete the form or make a choice, you’ll need to join them up to your business’s ‘default’ fund.

Ordinary time earnings

“Ordinary time earnings” are the amounts that each employee earns for their ordinary hours of work, including:

• Commissions
• Shift loading
• Annual leave loading
• Allowances
• Bonuses

Unless their hours are specified in an award or agreement, our employee’s ordinary hours are the normal hours they work. If you can’t determine the normal hours of work (such as for casual workers), the actual hours the employee works are their ordinary hours of work.

Normally, overtime payments don’t count towards ordinary time earnings, provided the employee’s ordinary hours of work are clearly identified. If that’s not the case, all the hours worked are included in the employee’s ordinary hours.

Deadlines and penalties

You must make at least quarterly payments into your employee’s fund. But there is nothing to stop you paying super more frequently than quarterly, for example fortnightly or monthly. Either way, you need to keep your employee’s super up to date by the due dates. These are:

If you miss a deadline, you will have to pay the superannuation guarantee charge (SGC). This non-tax deductible figure consists of three elements:

1. Super calculated on salary and wages
2. Nominal interest of 10 per cent per annum
3. An administration fee of $20 per employee, per quarter.

The fact that the SGC payment isn’t tax deductible, and contains both an interest element and a per-employee admin fee means that it is potentially expensive. It is much better to pay on time!

Questions about salary sacrifice and superannuation? Read H&R Block’s FAQs for answers.  

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https://www.kochiesbusinessbuilders.com.au/super-strategy-for-self-employed/