Imagine the following.
You go to make payment of your employees’ superannuation entitlements for the quarter and one or more of the following occurs:
Despite multiple requests to your employee, they still haven’t provided their super details to you yet;
One of your employees changed their superfund and didn’t let you know; or
One of your employees provided incorrect details for their superfund.
For anyone that employs staff, you will know that these are regular occurrences.
Now imagine that as a result, the super entitlements for these employees are unable to be paid by the due date, or, the super entitlements are paid by the due date, but the payment is rejected as it wasn’t able to be processed by a recipient super fund.
When this happens, the ATO’s stance is that the following has occurred:
The employer has failed to meet their super obligations;
The employer can no longer claim a deduction for the super that wasn’t paid by the due date;
The employer is now required to pay the super, prepare SGC forms, pay interest on the shortfall, and also pay an administrative levy; AND
If they don’t attend to these remedial requirements, the employer is potentially up for a 200% penalty. The 200% penalty is based on the super due for the relevant quarter, and does not take into account that the super entitlements may have already been paid.
Even more bizarrely:
The interest that is due to compensate the employee for late payment, is calculated from the beginning of the quarter, not from the payment due date; and
The catch up payments are not just based on the usual ordinary time earnings, but now also include overtime!
If that sounds too aggressive to you - that’s because it is.
Currently, there is no discretion for the Commissioner of Taxation to remit penalties where:
The employer has a good history of paying on time, or where
The employer made payment by the due date, but the payment was rejected due to:
Incorrect details being provided by the employee
The fund had been closed and the employer was not notified
Missing the payment date due to unforeseen circumstances, such as processing delays, public holidays lengthening payment timeframes, pandemics, floods, you name it.
The payment was made by the due date, but was not deposited into the employee’s superfund until after the due date (yes this counts as a late payment too).
There’s no doubt justification for the ATO wanting to crack down on unpaid super - there were too many business operators not complying.
But this is a step too far.
The penalty is too much, too inflexible, and does not make allowances for mistakes that are not of the employer’s doing.
Why put such a substantial risk on the employer when they may not be at fault?
So what can be done to fix the issue?
The new stapled super requirements do go some way to addressing these issues.
Lobbying by the tax profession, by accounting professional bodies and by business advocacy groups would go some way to moving reform forward.
There’s no doubt that a policy redesign is required - why not allow the employer to avoid penalties where there is a history of compliance, where the payment was made late due to the employee providing incorrect information, or where the employee failed to provide accurate information.
Penalties should be waived where the amount was paid and there is evidence of a reasonable attempt to pay by the due date.
Further, the administrative penalty should not be based on total earnings, and compensatory interest should be charged from the due date, not the start of the quarter.
In the meantime however, we live in a world where real time audits occur. And it is obvious that the risk lies with the employer.
To minimise the risk of making late super payments, the first step is to ensure super payments are made by the due date.
As a refresher, superannuation is required to be paid 28 days after the end of the quarter.
For example, any super entitlements that accrue from 1 July to 30 September, are required to be paid by 28 October.
Quarter | Due Date |
July to September | 28 October |
October to December | 28 January |
January to March | 28 April |
April to June | 28 July |
In addition to paying before the due date, employers may wish to:
Pay super monthly, or at the same time as wages. This way, you receive advance warning for any processing issues ahead of the actual due date, allowing you to rectify the issue and try again.
Refuse to roster a staff member until they have provided all of their details. If they haven’t provided the details you require, don’t allow them to start work yet.
Utilise the default superfund option sooner, rather than waiting for employees to finally provide the details required.
The reality is, we are moving to a real-time and automated audit program.
With the collection of more data, ongoing electronic reporting, and greater sharing of information between government departments, it has never been easier for the ATO to identify employers that are not complying.
The sting in the tail is those that are trying to do the right thing remain caught up in the same punitive regime.
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