Escaping the Superannuation Trap: Avoiding Compliance Pitfalls

If you're an employer, you're probably familiar with the Superannuation Guarantee and your responsibility to fulfill it. Perhaps you've been diligently meeting this obligation for years. When it comes to handling payroll and super, most employers fall into one of these categories. There are those who religiously pay super on time, without fail. Then there are those who take the obligation seriously but occasionally pay a little late due to their busy schedules. Fortunately, the number of employers who completely disregard superannuation is dwindling. However, it's not uncommon for bookkeepers to encounter business owners who occasionally stray into the second category. So, why do some people take a relaxed approach to this? Well, for the longest time, there were no consequences. But times have changed. The ATO has cracked down on unpaid superannuation, and the penalties are undeniably hefty. In this article, we'll explore the rules of paying superannuation, the evolution of governance, and how you can stay in control and avoid falling into the trap of complacency.

Rules & Penalties: Let's start by clarifying your obligations. The minimum requirement is to make quarterly payments into your employees' selected superannuation accounts. The Superannuation Guarantee (SG) is calculated based on your employees' "ordinary Time" earnings, currently set at a rate of 10.5%. This rate will increase to 11% on July 1, 2023. SG payments are due on the 28th day following the end of each quarter, and they must be deposited into your employees' superannuation accounts by that date.

Penalties: The penalties for neglecting this entitlement can be quite astonishing. They are made up of 3 main components. Administration fee per employee - $20, Super Guarantee Charge – nominal interest of 10% and the bad boy Part 7 Penalty – 200% of Super Guarantee Charge.

Lets put this into real numbers so you can get an idea of what sort of impact this might have on your small business. I'll give you a case where the maximum penalty is applied. For the purpose of this illustration I’ve left out the calculation and jumped to the big numbers.

John has 10 employees. The superannuation due date for Q4 was 28/07/2023. On 01/09/23 John realizes he hasn’t paid it. This is what he could be up for..

Original Unpaid Super for Quarter 4	$17,640
Super Guarantee Charge	$739
Administration Fee for 10 employees	$200
Part 7 Penalty	$18,579
Total now payable	$37,158

Wow! That escalated quickly. Paying super late has put poor John in a far worse situation. His initial obligation of $17,640 has skyrocketed to $37,158. To add insult to injury, John can no longer claim any of this as a tax deduction, not even the original unpaid super.

In the past: You may be thinking, "I've paid my super late before, and nothing happened. It was a breeze!" Well, you're not alone in that sentiment. Things used to be a bit more relaxed in the past. The system largely relied on employees noticing if their super wasn't being paid, which would then trigger an audit on the non-compliant company. However, times have changed, and so has the approach.

Bringing down the hammer! Over the past six years, Australia has accumulated a staggering $29 billion in unpaid superannuation. The ATO has implemented data matching, a process where they cross-reference information from Super Funds with their own records to identify discrepancies in reporting. The days of evading superannuation payments without consequences are long gone. The penalties can be severe. So, if you used to view super obligations casually or neglected due dates, it's time to reassess your approach. Even if you take it seriously but find the administrative tasks burdensome, such as gathering employee information and navigating super clearing houses, be prepared for additional challenges with the introduction of Payday Super in the coming years. Small business owners might wish they never opened this can of worms.

Navigating the world of superannuation compliance can be overwhelming, but fear not! A skilled bookkeeper can be your guiding light. They can assist you in meeting your obligations by implementing key strategies, such as understanding your SG commitments and due dates, preparing payments in advance, paying SG early, and ensuring you have the necessary funds set aside. At Local Bookkeeping, located on the beautiful Sunshine Coast, we specialize in helping businesses avoid compliance pitfalls. If you need assistance, don't hesitate to reach out to us.

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