How to Sort Superannuation for Your Employees
Business| By Stuart Ridley | April 13, 2020
Paying superannuation for your employees is compulsory. Here’s how to make it easier and more efficient – and stay on the right side of the ATO and Fair Work.
Start with the Right Policies When You Hire EmployeesWhen you hire staff members you're bound by the Fair Work Act 2009, designed to make working relationships between employers and employees fair (it's in the name). You're also bound by ATO rules for reporting and paying income tax and superannuation, under the Superannuation Guarantee Act.
Get Expert HR Help and Information
While there is plenty of information online about Fair Work rules, seek professional advice to save time, especially when hiring your first employees. A nifty package of Essential Workplace Policies is a good place to start (the 12-month subscription delivers the latest information about complying with the Fair Work Act, and includes a starter pack of workplace policies).
You can also get personalised HR advice over the phone, like this HR Help Premium Service, which offers professional consultation on Fair Work compliance and HR best practices.
Find Out if You Must Pay Super
Superannuation is a savings plan for retirement. Employers must pay at least the super guarantee on top of regular wages and, in most cases, you'll be paying superannuation for employees if a staff member is:
- Over 18 years old and earns $450 or more from you before tax in a calendar month
- Under 18 years or a private/domestic worker and works more than 30 hours a week
- A contractor who qualifies for a super guarantee because they're paid mainly for their personal labour and can't delegate the work.
Find out if you need to pay super using the ATO's Superannuation guarantee eligibility decision tool.
Don't Forget Super if You're Self-employed
If you're self-employed, the government expects you to set up your own retirement savings. Consider making super contributions to a superannuation fund anyway, even if you have other savings, as people who are self-employed (such as sole traders and partners in a partnership) may be eligible for benefits including:
- Tax deductions for personal superannuation contributions – your fund will need your tax file number to accept them
- Low-income super tax offset
- Government super co-contribution for contributions you don't claim a deduction for
- Extra concessions for certain invalidity payments.
How Much Is the Super Guarantee?
The latest minimum rate for the super guarantee is 9.5% of an employee's ordinary time earnings, but not overtime. Check out the ATO's fact sheets on how much super to pay and how to work out whether payments are considered 'ordinary time earnings'.
The super guarantee must be paid:
- Every 3 months – calculated from the first day of employment
- Into the employee's nominated account
- For all back pay of salary or wages, even if an employee no longer works for you
When paid on time, the super guarantee is tax deductible against business income, but conversely, charges apply for late or missed super guarantee payments. If you don't pay the minimum super guarantee for an employee on time and into the right fund the ATO might make you pay a super guarantee charge, which is non-tax deductible and includes penalties.
Get Your Employees’ Super Set up Right
Every employee eligible for super will need a fund, which they might be able to choose – but note, you can’t give employees advice about choosing a fund. Instead, refer them to ASIC's MoneySmart fact sheets.
The ATO's guidelines for super include 7 key steps:
- Choose your employer-nominated fund and contact it before offering it as a default fund. Also check it's compliant with the ATO's Super Fund Lookup.
- Check if the employee is eligible to choose a super fund. Use the Fair Work industry award lookup for clauses or consult a HR professional.
- Give the new employee a Superannuation Standard Choice form, which details your default fund and allows eligible employees to choose their fund.
- Send the employee's tax file number to their fund when you make a super payment. If they're due a super payment but haven't given you their choice of fund yet, pay their super into your default fund.
- Report the super liability via Single Touch Payroll to the ATO every time you pay salary and wages. (Super payments are then paid at least each quarter.)
- Use the ATO's SuperStream system to pay and report the correct amount of super into the right fund for each employee. You can use the ATO's Super guarantee contributions calculator, or employ a tax professional to manage the process for you.
- Keep accurate records for 5 years showing:
* Employees' choice of fund
* All amounts paid for each employee
Ensure You Pay Employee Superannuation on Time
Super payments are calculated from the day someone works for you and must be paid at least every quarter. The ATO's quarterly due dates for super payments are generally 28 days after the end of a quarter:
- Q1: 1 July – 30 September, due 28 October
- Q2: 1 October – 31 December, due 28 January
- Q3: 1 January – 31 March, due 28 April
- Q4: 1 April – 30 June, due 28 July
If the due date falls on a weekend or public holiday, payments will be accepted on the next workday. You can also pay in instalments (e.g. fortnightly or monthly) as long as you pay all the super guarantee by the quarterly due date.
Make Sure You Can Meet Superannuation Payments
Poor cashflow can sometimes cause businesses to miss important payments such as super and tax. Sort superannuation for your employees by getting a Credit Management subscription for 12 months, which includes CreditorWatch monitoring and debt-collection tools that integrate with Xero software.
Track Contribution Amounts (and Other Financials) with Accounting Software
Accounting software automates a lot of the day-to-day processes for super contribution amounts, wages and tax, so it's worth learning the key functions. You can get up to speed with Bookkeeping Setup and Training, an online training course which includes 15 hours of personal one-on-one training using Xero (note: you'll need to buy Xero separately) and access to how-to guides. Xero is SuperStream compliant.
Streamline Super and Stay Compliant
The ATO's SuperStream system is now compulsory for employers. It streamlines the transmission of employee information and super payments in a standard electronic format among employers, super funds, service providers and the ATO.
The big benefit for employers is you can track all super for each period in a single transaction with a unique payment reference – even if those payments go to multiple funds.
Businesses with fewer than 20 employees or an aggregated turnover of less than $10 million a year can use the free Small Business Superannuation Clearing House service. You make a single electronic payment into the clearing house, which will then distribute payments to each employee's superannuation fund.
Grow Your Understanding of Superannuation in Australia
Want more general information to sort superannuation for your employees? Take a look at these helpful resources on the superannuation system in Australia.