Superannuation is a tax incentive long-term saving for retirement. With some exceptions, all employers are required to pay a percentage of their employees’ salaries to a superannuation fund of the employee’s choice, in addition to the salary.
What is Superannuation Guarantee?
The Superannuation Guarantee (SG) is a compulsory employer superannuation contribution introduced by the labour government in 1992. The SG legislation requires an employer to pay superannuation contributions to a superannuation fund for their employees, on top of the employee’s salary. The amount of SG to be paid by an employer is a percentage of the employee’s salary. Starting from 3% in 1992, the current SG contribution rate is 9% but from 1 July 2013, this will be gradually increasing to 12% by 2019. The SG is calculated based on the employee’s ordinary time earnings.
Who is eligible to receive SG?
The SG legislation requires an employer to pay SG to pretty much nearly all workers, whether they are working full time, part time or on a casual basis. This also includes foreigners with eligible working visa, working in Australia.
There are a few exceptions where employers do not need to meet the SG obligations.
These exceptions are:
- An employer does not have to pay SG for worker receiving a salary less than $450 a month before tax;
- An employer does not have to pay SG for worker older than 70;
- An employer does not have to pay SG for worker under 18 working less than 30 hours a week.
NB: Anyone under 18 working more than 30 hours a week and receiving more than $450 a month is entitled to be paid SG by their employer.
The new SG law
- From 1 July 2013, SG will be paid to anyone regardless of their age. The restriction to pay SG to workers over 70 has been abolished. No matter how old you’re, as long as you are getting $450 or more a month before tax, your employer must pay SG for you.
2. From 1 July 2013, the SG rate will be increasing gradually to 12% by 2019.
The rate will increase in each financial as follows:
2014 = 9.25%
2015 = 9.5%
2016 = 10%
2017 = 10.5%
2018 = 11%
2019 = 11.5%
2020 = 12%
When does your employer have to pay SG to your superannuation fund by?
In your payslips, you should see SG contributions noted for the relevant pay period by your employer. If you get paid on a monthly basis, the SG amount shown in your payslips should be your base annual salary times 9% divided by twelve.
Some employers may decide to send their employees’ SG contributions to their respective superannuation fund on a monthly basis. However, SG contributions must be paid to a superannuation fund at least on a quarterly basis by the due date, i.e. by 28th day of the month following the end of the quarter.
For example, employer SG contributions for the quarter ending March; your employer must pay the amount to your superannuation fund by 28 April and for the quarter ending June; the SG must be paid by 28 July.
What is a Superannuation Guarantee Charge?
The Australian Taxation Office (ATO) imposes a penalty on employers who fail to meet any one of the following obligations:
- Not paying the required SG amount; or
- Not paying the SG to the employee’s choice of fund; or
- Not paying the SG by the deadline.
This penalty is called Superannuation Guarantee Charge (SGC). The SGC consists of the SG shortfall amount, an interest (currently 10%pa) and an administration fee of $20 per employee.
The employer pays SGC directly to the ATO, not to their respective employee’s superannuation fund. The ATO is responsible for sending the SGC to the relevant superannuation fund.
Are you eligible to receive SG if you’re self-employed?
If you run your own business or work for yourself, then you don’t have to pay SG for yourself. However, if you set up your own company and you’re an employee of your company, then your company must pay SG for you and for any employees your company employs.