Paying super for employees: Laws, types and more

Employer superannuation contributions is a legally required payment to an employee's super fund. 

Wilson Porter can offer professional advice to you and your employees.

The legal details

From 1 July 2021, an employee's super contribution is calculated under the Superannuation Guarantee (SG) regime at 10% of the employee's eligible gross wages. Wages for this calculation is defined as "Ordinary Time Earnings" and is the amount you pay employees for their regular hours of work, including things like commissions, shift loadings and some allowances. Employers must be aware that any shortfall or late payments of contributions will result in penalties referred to as Superannuation Guarantee Charge (SGC), to the Australian Tax Office (ATO).

The penalties for missing a payment or being late include:

• SG shortfall amounts, or the full value of the amount you missed, including any liabilities from the employee
• Interest of 10%
• Administration fee of $20 per employee, per quarter

The SG payment is made four times a year at a predetermined date. The due dates of the payment are:

• Q1: July to September – 28th October
• Q2: October to December – 29th January
• Q3: January to March – 28th April
• Q4: April to June – 28th July

Tax deductibility

Tax deductions are available when you pay employee contributions on time. It is considered part of the employee's pay and therefore is tax-deductible.

If you're a sole proprietor, you have the option to contribute on your own behalf – it is not obligatory. If you do, it is also deductible.

How to set up super contributions

Employers must offer eligible employees a choice of super fund to meet their superannuation obligations. You must identify eligible employees, provide a Standard choice form and act on the employee's choice. However, if they don't make a choice, aren't eligible or don't want to, you have the option for a default super fund or the 'employer nominated fund.'

Choosing a default fund for your organisation is an important decision. The choice you make could make thousands of dollars of difference to your employees' retirement savings.

When selecting a default fund, you should consider the:

• Ease of administration
• Fees that your employees will be charged as members
• Insurance options and premiums available to your employees as members
• Long-term investment performance of the fund
• Education and service the fund offers

There are five types of super funds in Australia available to businesses including:

• Corporate funds: This fund is eligible for corporations and is operated under a board of trustees. They are usually at a low to medium cost.
• Industry funds: Have a limited number of investment options made to meet most people's needs and include MySuper accounts. However, some allow employees to choose their investment shares.
• Public sector funds: Offered to state government and not-for-profit employees and includes fairly low fees.
• Retail funds: Often run by banks and other financial institutions, this type of fund is available for all investors. Participants are offered this fund through an administration platform with access to a wide range of investments. The fees cost range from medium to high because of the advice and platform fees included.
• Self-managed (SMSF): This is for investors who want to include their family on the fund, with a max of six total participants. All members must be trustees of the business and are responsible for compliance with the law. 

What your employees need to know

While employers are not legally allowed to give advice on which fund employees should choose, there are some details that they should know about.

Who is eligible?

Whether an employee works full-time, part-time or on a casual basis, they are eligible for super if they are earning $450 or more before tax in a calendar month (Please note at the date of writing, there is a Bill in Parliament to remove this threshold). However, if an employee is under the age of 18, they are only eligible if they work at least 30 hours a week. They must be an Australian citizen or work for an Australian business.

When can they access super funds?

You can withdraw your super:

• When you turn 65 (even if you haven't retired)
• When you reach preservation age (between 55 & 60) and retire
• Under the transition to retirement rules, while continuing to work

What happens if they leave your employment?

Employees will still have their super whether they leave the company or are terminated. Their new employer will be responsible for the superannuation payment. You, however, will not continue super contributions after they leave.

For more advice or to set up a meeting with your employees, Wilson Porter is available to help you. We've gone the extra mile to ensure we can assist your business and offer professional guidance. Contact us today to get started.