Understanding the super guarantee for new employees
When adding an employee to the team, be mindful that you're required to make super guarantee (SG) contributions on their behalf. Also known as compulsory super payments, the SG is equivalent to 9.5% of an employee's before-tax pay.
It must be paid when an employee earns $450 or more (before tax) in a calendar month. While an SG payment is an additional drain on cash flow, it is tax deductible against your business income.
The first step in making an employee SG payment is to have a default super fund ready to go.
This fund should be made available just in case an employee doesn't choose a super fund of their own. Also called an employer-nominated fund, it must be a complying fund that meets specific requirements and obligations under superannuation law.
It must also be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product (see below). Since January 1, 2014, employers have been required to pay the SG contribution into a super fund offering MySuper on behalf of those employees who have decided not to exercise their right to choose a super fund.
With the super choice laws now more than a decade old, a default fund might only come into play if you're taking on an employee who is new to the workforce. That said, if an employee opts for an employer-nominated fund, be sure to give them the fund's details so they don't lose track of their super.
To confirm that your default fund is compliant, check with the fund trustee or an authorised representative of the fund, or the tax office's Super Fund Lookup service.
If an employee indicates that they would like to choose a super fund, you need to check they can exercise this option. An employee can choose a super fund if they are hired under a federal or state award and/or an industrial agreement.
If you're not sure if an employee has the right to choose, visit the Australian Government's Fair Work website at (fairwork.gov.au/pay/tax-and-superannuation) for more information.
Some super funds, according to the Australian Tax Office (ATO), may ask that you become a "participating employer" before you can pay super guarantee contributions to them on behalf of your new employee. If you agree, you may have to make super payments more regularly - such as monthly, instead of quarterly.
If you don't wish to become a participating employer, talk to the super fund about how you can make super contributions on behalf of your new employees.
If your employee provides you with a tax file number (TFN), you must pass it onto their chosen super fund when making the next payment. It's best not to overlook the TFN, as the failure to pass it on to a super fund could initiate a fine and involve additional frustrating paperwork.
This brings us to the issue of making payments. SG payments must be made to a complying fund by the quarterly due dates, which are 28 days after the end of each quarter.
If you miss a payment, you may need to pay the SG charge and lodge some supporting paperwork explaining why you failed to make the payment.
The good news is that you can correct a late payment by making the super guarantee payment as soon as possible, according to advice on the ATO website, and by making an additional contribution to the employee's fund to help cover any lost interest incurred.
The ATO also says that it's unlikely to impose a penalty if a business has a good history of lodging and paying its SG liabilities in full and on time and you can prove that as an employer you are generally trying to do the right thing.
My super keeps it simple
Many retail, industry and corporate super funds now offer MySuper accounts. Super and simple are generally mutually exclusive concepts, however with a MySuper account there's usually a simpler investment approach taken by the fund, along with lower fees thanks to fewer bells and whistles.
With a MySuper account, the majority of the pooled funds (70%) are generally invested in growth assets such as shares and property with the remainder in defensive assets such as cash and bonds. Some MySuper accounts will also offer a lifecycle option that adjusts the way your super savings are invested in line with your stage in life.
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