With the introduction of the Small Business Superannuation Clearing House in July 2016 superannuation compliance has been emerging as one of the bigger issues facing businesses in recent times.
According to the ATO, small business commonly makes the following mistakes with respect to its super guarantee obligations:
- paying insufficient super contributions for eligible employees;
- missing the quarterly cut-off dates;
- not understanding that, in some circumstances, super should be paid for contractors even if the contractor quotes an ABN;
- not keeping accurate records;
- not passing on an employee’s tax file number to their super fund;
- not lodging a Superannuation Guarantee Charge Statement – Quarterly if they have not paid their employees super to the fund by the due date, or don’t pay the correct amount.
Adequate Record Keeping
Superannuation audits can be initiated through irregularities in payments forwarded on to employees. Although payments may have been made in a timely manner, if records are not retained to prove this fact, businesses can become liable to repay additional superannuation, in addition to any interest charges and administration fees accrued during that time. It is critical that businesses retain records for payments of superannuation, detailing information from the date range, amount, employees paid and amounts paid.
Calculating Superannuation Contributions for Eligible Employees
Super contributions are based on the income of your employees. This is why you need to see to it that their income is calculated correctly. The determination on what earnings attract superannuation and what don’t have become one of the major reasons client are unwittingly overpaying or underpaying superannuation, costing organisations additional expense through either unnecessary superannuation payments or interest accrued on underpayments.
Your payroll system should not be a ‘set and forget’; and we suggest a review of the inclusions in the systems calculation of super contributions to limit the chance of error.
Contractor v Deemed Employee
Some businesses treat their workers as contractors when in fact they are employees. Whether a contractor quotes an ABN number or not is irrelevant when it comes to your superannuation obligations. According to the Superannuation Guarantee, a contractor is considered an employee (and therefore entitled to superannuation) if the contract between you and them is wholly or principally for their labour. A worker is generally an employee rather than a contractor if they perform work under your direction and control, work standard or set hours, have an ongoing expectation of work and bear no financial risk for the tasks they perform.
Implications of Getting it Wrong
If you discover that you have not adequately met your superannuation requirements and have fallen victim to one of the common mistakes, penalties can prove costly, at times costing your organisation more than the actual superannuation shortfall itself. Not only will you have to pay the superannuation shortfall, you will have to pay an administration cost for each employee per quarter that an error was detected, a general interest charge until payment is made and possible further penalties.
It is important to note that company directors, can be held personally liable for unpaid and underpaid superannuation, even if the liabilities arose prior to their appointment as a director.