There has been quite a bit of media focus in recent months about some employers failing to pay the correct, or in fact any, compulsory contributions to superannuation for their employees. So serious is the problem, new legislation has been tabled in parliament offering employers a one-off amnesty if they come forward and self-correct unpaid or short-paid contributions. [1]

Despite the superannuation guarantee (SG) system being in place for almost 30 years (it was introduced back in 1992), an estimated 2.1 million employees are being underpaid their SG contributions by as much as $2.8 billion each year[2].

Does this affect you, and your retirement savings?

What is an employer required to pay?

Employers are currently required to contribute 9.5% of an employee’s salary to the employees nominated superannuation fund to comply with SG legislation. The Government is planning to progressively increase the contribution to 12% over the coming years.

The rules relating to SG are quite intricate, however when an employer fails to comply, they become liable to pay an SG charge.

SG contributions are based on an employee’s ‘ordinary time earnings’ and are payable on a quarterly basis. They must be paid by the 28th day of the month following the end of each quarter. So, for your June quarter salary, your superannuation must be paid by 28 July, and then 28 October, January and April respectively.

Exceptions and limits

There are very limited exemptions for payment of SG contributions. For example, an employer is not required to pay SG contributions for an employee in respect of those months an employee earns less than $450.

There is also an upper limit of ordinary time earnings on which SG contributions are payable. For the 2019/20 financial year, the limit is $55,270 per quarter. This is referred to as the “maximum contribution base”.

When an employee receives ordinary time earnings of more than $55,270 in any quarter, there is no obligation for their employer to make SG contributions for earnings that exceed that amount.

As a consequence, the maximum SG contributions an employer is required to make at law in 2019/20 is $5,293.40 per quarter.

Extra contributions

Having said that, some employers may pay more than 9.5%. That is dependent on the generosity of the employer and/or any obligations imposed under an employment contract or workplace agreement.

In situations where a person has two or more employers, and it is likely that their SG contributions may result in them exceeding their contribution cap of $25,000 in a year, recently passed laws allow the employee to opt-out of receiving some SG contributions. Readers who feel they may be affected should seek advice from their accountant or financial planner.

The SG for small business

One aspect of the SG often overlooked, is the fact that many small business operators regard themselves as being ‘self-employed’ and don’t believe the SG obligations apply to them, and to family members they may employ.

However, where a small business operates under a (private) company structure, the directors of the company are also regarded as employees for SG purposes. The business has an obligation to comply with the laws relating to the payment of superannuation contributions. However, with the extension of the Single Touch Payroll system to all businesses, the Australian Taxation Office (ATO) now has the tools available to more closely monitor an employers’ compliance with their SG obligations.

What can you do?

If you believe your employer has not been paying the correct level of SG contributions, you have two options:

• you can approach your employer and ask them to make the necessary contributions, and/or
• you can request the ATO to follow up unpaid contributions. Guidance on having the ATO investigate unpaid contributions can be found here: ATO | Unpaid SG Contributions.

The compulsory superannuation system is an important part of Australia’s retirement savings landscape. It is important for employees to understand their rights in respect of superannuation contributions and take an active role in ensuring their employers are complying with the SG scheme.

If you have concerns regarding your rights to receive superannuation contributions, you should speak with your accountant, financial adviser or the ATO.

[1] Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019
[2] Cross Agency Superannuation Guarantee Working Group Interim Report, January 2017