How compulsory super payments work

The compulsory nature of superannuation has been a feature of the Australian employment landscape for more than 25 years. Prior to this, superannuation was provided by only long-established companies and government departments that considered it an important employee benefit in attracting, retaining and rewarding valuable staff.

Award superannuation was introduced in 1986 as part of a National Wage Case in an attempt to broaden superannuation savings to the wider working population. It is now a feature of the majority of Federal Awards and a large number of State Awards.

Award superannuation challenged the notion that superannuation was a benefit only for the privileged few. The superannuation guarantee, which was applied from July 1, 1992, built on this foundation, spread superannuation to most working Australians - even to those not covered by Awards.

While there are no employers exempt from paying the superannuation guarantee (SG) as it applies to most of their full-time, part-time and casual employees, there are a number of employees an employer is not required to provide superannuation for, e.g., very high or very low income earners or some casual employees.

While all employers have an obligation under the SG legislation to pay these superannuation contributions, this does not override any other obligation required by Federal or State Awards, industrial agreements or employer contracts.

If an employer makes superannuation contributions under an Award and the Award fund is a complying fund, these contributions count towards meeting their SG obligations. But as the SG is now at 9.5% of each employee's earnings base, employers should ensure that no gap exists between the Award requirements and that for superannuation guarantee purposes, because penalties may apply.

Under the SG the employer must also choose between making these payments to a complying superannuation fund, MySuper product or Retirement Savings Account chosen by the employee under their choice of super fund rights. If they don't they might find themselves paying the Superannuation Guarantee Charge (including prescribed late payment penalties to the Australian Taxation Office).

Where employers followed these obligations they are able to claim a tax deduction up to the limits allowed by the ATO. Should contribution payments not be paid by the due date and as a result, the SG Charge becomes payable then no tax deduction will be allowed.

The ATO has issued a number of specific rulings and determinations as guidance in determining an employer's obligations, who qualifies as an employee for superannuation purposes, including the status of contractors.

Awards usually specify when contributions are due, while the government also requires SG contributions to be paid quarterly.

The table below provides a brief overview of the differences between Awards and the superannuation guarantee.

This outline is provided by way of information. If you are unsure of your obligations or require specific advice, consult your financial adviser, consultant, your union or professional association or your super fund.