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Understanding Superannuation: How to pay employee super

It's no secret that the ingredients for running a successful small business include careful planning and consideration. You shouldn't take preparing for super contributions out of this recipe.

From mitigating the risk of penalties to claiming deductions, here's our guide for efficiently managing your superannuation obligations.

Understanding Superannuation

A superannuation benefit is an employer's contribution to their workers' retirement. Nearly everyone you've ever worked for has contributed to your retirement as long as you qualified. As a business owner, it's your turn to do the same for your employees.

ATO legal obligations regarding super

Superannuation needs to be paid to employees regardless of their status — full-time, part-time and temporary/seasonal workers. The Australian Taxation Office (ATO) has set forth laws and regulations outlining who qualifies and who doesn't.

Generally, all workers are eligible for super, but more specifically, if they earn more than $450 a month before taxes, they qualify.

However, if someone is under 18, you must pay them super if they work more than 30 hours a week, no matter how much they earn a month. This is actual hours worked, not averaged over monthly periods. Private workers such as housekeepers or nannies also qualify if they work 30 hours a week.

For example, Christina is 16 and works 20 hours a month when not in school. But her classmate, Natalie, works at the same company and clocks 16 hours a week. While Christina wouldn't qualify, Natalie would due to the hours they work.

Who's not eligible for super?

While most employees qualify for super, some individuals do not. These workers include:

  • Self-employed.
  • Armed forces reserves.
  • High-income workers who have opted out.
  • Non-resident employees outside of Australia.
  • Foreign executives with particular visas.

Additionally, if you operate your business in another country, yet hire Australian employees, you don't have to pay super to employees outside of Australia.

Setting up super payments

Employers should have a default super contribution they can offer their workers if they choose to participate. A default super is decided by the employer that workers can opt into and meets the minimum requirements set by the ATO.

Some may come with a stapled super fund, or a fund that follows them to each job they have. It aims to help cut fees and avoid multiple funds to keep track of. The employee can either opt into your default fund, or your company will need to contribute to their fund separately if it complies.

To get started with super contributions, make sure you:

  1. Offer employees a choice of superannuation contributions.
  2. Keep records of those who opt out of your super fund.
  3. Investigate your employees' stapled funds, if they have one.
  4. Pay contributions on time and consistently.

The Small Business Superannuation Clearing House (SBSCH) is a free service set up by the Federal Government that allows you to make a single payment for your employees, and they handle the rest. For small business owners, this service can free up valuable time you need to run your business.

Calculating super contributions

By law, you must pay super at least 4 times a year at a minimum of 11% of their ordinary time earnings (OTE). By 2025, this number will progressively increase to 12% by 1 July 2025.

The quarterly basis you must comply with is as follows:

  • Quarter 1: 1 July – 30 September, Due by 28 October.
  • Quarter 2: 1 October – 31 December, Due by 28 January.
  • Quarter 3: 1 January – 31 March, Due by 28 April.
  • Quarter 4: 1 April – 30 June, Due by 28 July.

For example, Ronald starts work at $5,000 a month in August near the end of the July-September 2024 quarter. Victoria, the owner of the company, would only have to pay for the time Ronald worked that quarter:

  • $10,000 x 11% = $1,100

Victoria will contribute $1,100 to Ronald's superannuation fund for that quarter.

This $10,000 is known as Ronald's OTE or his gross earnings before tax. Some of what this can include is:

  • Commission.
  • Bonuses.
  • Annual leave.
  • Allowances.

If a date falls on a holiday or a weekend, the payment must be made by the next business day.

Super payment methods

You can pay for super contributions to a complying super fund or a retirement savings account (RSA). You must report your payments electronically through SuperStream or Single Touch Payroll. However, if your company is considered a small business, you can set up your super fund through the SBSCH and take one more thing off your plate.

Employees on a coffee break around a table.Make sure that your calculations are correct when it comes to superannuation.

Tax deductions for super contributors

To entice business owners to pay super, the ATO has set up tax deductions for superannuation guarantee contributions. To qualify, you must:

  • Be eligible: Contributions must be made to a complying super fund or RSA and must meet or exceed the super guarantee (SG) rate.
  • Calculate accurately: Underpaying a super fund can result in SG charges.
  • Be timely: Contributions must be made by the end of the financial year to be deductible.
  • Document: Keep track of who is paid a super contribution and how much they're paid each quarter.

Lodge a tax deduction claim for super contributions through your company's annual tax return to ensure all contributions and documentation are accurately accounted for.

Common issues and solutions

Five common issues can occur when setting up and paying for contributions:

  1. Late payments: Automate super payments to ensure they're always on time. Consider using payroll software that integrates with the super funds' payment systems.
  2. Incorrect calculation of contributions: Use the ATO's super guarantee contributions calculator to accurately determine the amount of super to be paid.
  3. Employee's chosen fund not receiving contributions: Regularly verify fund details with employees and ensure the correct use of SuperStream for transactions.
  4. Compliance with choice of super fund obligations: Offer employees a choice of super fund upon their start date and adhere to their selection or use their stapled super fund if no choice is made.
  5. Managing super for multiple employees: Leverage the ATO's Small Business Superannuation Clearing House to simplify and consolidate super payments for up to 19 employees or those with annual turnovers below $10 million.

Key takeaways

Nearly everyone you employ is eligible for super, but the logistics of providing super isn't as straightforward as it seems — and the consequences of missing a step are expensive. But you shouldn't have to feel like you have the weight of the world on your shoulders.

Wilson Porter has resources available to assist businesses in handling super payments efficiently. With a wealth of experience behind us, we're confident in our ability to give professional and expert advice to help you succeed in your financial ambitions.

Leverage Wilson Porter's payroll and tax services for hassle-free super payments: Wilson Porter Services.