Paying your employees super – what you need to know

If you own or manage a business and employ people, you may need to pay your employees super, it’s a legal requirement. The rules are set out under the superannuation guarantee (SG) legislation, a law that tells you the minimum amount you need to pay, to which workers, and how often.

The Australian super system helps people to save money during their working lives, so they can help support themselves financially in retirement. Employer super contributions are a crucial part of the system, and as an employer, it’s your responsibility to keep on top of payments.

Find out the basics below and see how AustralianSuper can help you manage your employee super payments.

 

Super payments for employees made simple



How the superannuation guarantee works

The superannuation guarantee (SG) is set by the Australian government that determines the percentage of an employee’s wages that you, the employer, are legally required to pay them.

It’s called a ‘guarantee’ because it references the minimum regular payment you’re obliged to pay.

Workers eligible for super payments 

The below rules apply to all employees, whether they work on a full-time, part-time or casual basis (including those working in Australia on temporary visas).

You may also need to pay SG for some contractors. More information on super and contractors is available at ato.gov.au.

 

 employee age earnings a calendar month eligible for super?
Over 18 $450 or more before tax Yes
Under 18 $450 or more before tax Yes, if working at least 30 hours a week

 

Calculating your employees super 

The current minimum SG rate for eligible employees is 9.5% of ordinary time earnings (OTE) or salary1. Some employees may have a higher percentage of super agreed by an award rate or employment agreement. If this is the case, you’ll need to pay the higher amount. (For more information about award rates visit Fair Work Australia).

Ordinary time earnings (OTE)

OTE is the amount your employee earns for their ordinary hours of work. This generally includes annual leave, sick leave and long service leave. If loading, allowances, overtime and commissions are part of an employee's pay, calculating the ordinary time earnings can be more complex.

The ATO’s OTE checklist identifies payments which could be salary or wages, and highlights if they're part of OTE2.

Using OTE to calculate employee superannuation payments

You can use an employee’s OTE to calculate how much SG to pay them. The first step is to multiply the employee’s OTE for the business quarter by their SG rate (either the standard 9.5% or the higher percentage you use if they’re on an award rate).

The example below shows how this sum works for an employee with the standard 9.5% SG.

Sally

Sally

During the first quarter of the 2020-2021 financial year (1 July-30 September) Sally’s OTE was $10,000. If you multiply this by the 9.5% SG ($10,000 × 9.5% = $950) you can see that Sally would be paid $950 super.
As her employer you need to pay this money into a complying super fund or Retirement Savings Account (RSA) by the payment due date.

 

How often to pay your employees super

You must pay your employees the super they’re owed at least once a quarter by due dates (shown below). You can choose whether this is one payment, or multiple payments across the quarter. The frequency may depend on whether any employees are under an award or employment agreement that sets out a specific payment frequency. If this is in place, you’ll need to meet the payment criteria outlined.

Employee super contributions – FY21 due dates

Quarter Period Payment due date
1 1 July–30 September October 28
2 1 October–31 December January 28
3 1 January–31 March April 28
4 1 April–30 June July 28

Source: ato.gov.au

 

What to do if you miss a payment 

If you miss a super payment deadline, you’ll have to lodge a super guarantee charge (SGC) statement by the end of the following month after the SG due date. You’ll also have to pay the SGC to the ATO, which is not tax-deductible, and is made up of:

  • The unpaid SG payments (those made after the payments deadline may reduce the SG charge you need to pay)
  • Interest on the outstanding amount, and
  • An administration fee.

You can download the SGC statement and work out how much you need to pay for each employee using the ATO SGC statement and calculator tool.  It’s important to note, further penalties will also apply if you don’t lodge the SGC statement and pay the SGC by the due date. 

Super guarantee increase – 12% by 2025

The SG rate has been 9.5% per year since 1 July 2014. However, from July 2021 the superannuation guarantee legislation states that super payments will increase incrementally, at a rate of 0.5% each year until they reach 12% in 2025. AustralianSuper will keep members up to date with these changes. For more information on the rise to 12% visit ato.gov.au.

 

Tax deductions and due dates for super payments 

Making super payments on time isn’t just important for your employees, it’s important for your business. Employers who make SG contributions in line with the ATO’s deadlines can claim the payments as a tax deduction and will avoid paying an SGC to the ATO.

 

Providing Tax File Numbers (TFNs) 

Tax file numbers are an important part of the super payments process. When a new employee starts work with your business, they normally fill out an ATO form providing their TFN. As the employer, it’s your responsibility to pass the employee’s TFN to their super fund. You must do this the next time you make a contribution to that fund.  If you receive the TFN less than 14 days before you are due to make a contribution, you have 14 days to give the TFN to the fund.

If you’re late or don’t provide an employee’s TFN to their super fund, the ATO can fine you $2,220.

Privacy laws state that employers cannot give AustralianSuper a copy of an employee’s TFN form, but you can share the TFN itself.

 

Reporting extra SG payments to the ATO

If you pay your employee extra super contributions, for example from a bonus or via salary sacrificing, you may need to report the payments to the ATO. These extra contributions could influence any government payments your employees may receive. For example, family tax benefits, child support payments and government co-contributions. You can do this by reporting any extra super paid through Single Touch Payroll or as an item on your employee’s PAYG Payment Summary and Payment Summary annual report to the ATO.

In most cases, a business doesn’t need to report on the basic levels of SG. To find out more, visit ato.gov.auto work out if your contributions are reportable.

 

Paying contractors super 

Many people in Australia work as contractors, so it’s important to know the relevant super rules. In most cases, if your business pays a contractor for their labour, the government will consider them to be an employee for super purposes. That means you’ll need to pay the 9.5% SG, even if they have their own Australian Business Number (ABN). 

If your contract is with someone who doesn’t provide the labour (such as a company, trust or partnership), you don’t need to pay super to that person.   

The Australian Taxation Office (ATO) has more information on paying contractors super and how to define contract workers as employees for super purposes. 

 

Maximum SG payment caps

A rule called the Maximum Contribution Base puts a limit on the amount of SG an employer must pay an individual employee in a single quarter or financial year. For the 2020/21 financial year, this limit is $57,090 a quarter or $228,360 a year3. Anything earned above that limit doesn’t have to have super paid.

For employees whose OTE is higher than the maximum contribution base, you may still pay super based on 9.5% of OTE. For the current rates, visit ato.gov.au.

However, unless they are required under an award or agreement, the extra contributions are not compulsory, and you should keep in mind concessional contribution limits.

 

Example

For the 2020/21 financial year, the maximum contribution base is $57,090 a quarter. So, for an employee whose ordinary time earnings is more than the maximum contribution base at $60,000 a quarter ($240,000 a year), an employer can choose to pay SG contributions of either $5,700 or $5,423 per quarter as calculated below.

If an employee was paid $60,000 a quarter. ($240,00 a year):

1. Using 9.50% or ordinary time earnings:

9.5% x $60,000 = $5,700 super owed per quarter 

2. Using the maximum contribution base:

9.50% x $57,090 (cap) = $5,423 super owed per quarter

 

Choosing a default super fund 

Super regulations state that employers generally must allow their employees to nominate their own super fund, by giving them a Standard choice form (PDF) when they start work. However, not all of your employees will choose a preferred fund. Therefore, your business should also nominate what’s called a ‘default fund’ to make sure you can pay super.

Choosing a default fund is an important decision. It helps to look for a fund that works for both you and your employees.

 

DISCOVER AUSTRALIANSUPER FOR YOUR BUSINESS

 

Get help to make your electronic super payments

QuickSuper clearing house, from AustralianSuper 

New ‘SuperStream’ legislation made electronic super payments compulsory4. This reduces the number of missing and lost super payments and makes managing and reporting on payments simpler for businesses. One way to meet your SuperStream requirements is to pay super through a compliant ‘clearing house’, such as QuickSuper5.

QuickSuper is free for businesses if they have an employee with AustralianSuper. A clearing house also makes it easy to pay employees across multiple funds. Rather than making separate payments to each employee's super fund, you can just make one payment. The clearing house divides the money accurately and pays it into the correct funds and accounts.

 

Read more:

PAYING EMPLOYEES SUPER ON LEAVE

PAYING EMPLOYEES SUPER ON OVERTIME AND BONUSES

Sources

  1. Changes to this rate are legislated at 01 July 2021.
  2. AustralianSuper Your super obligations
  3. gov.au - Maximum super contribution base
  4. ATO.gov.au/superstream – SuperStream
  5. QuickSuper is a financial service provided by Westpac and isn’t the responsibility of AustralianSuper. Terms and conditions apply. Visit https://quicksuper.westpac.com.au to learn more.

This information is general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. 
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