25 June, 2018
Start NOW to check your superannuation compliance
What you need to know
The federal government has announced a 12 month Superannuation Guarantee Amnesty, allowing employers to catch up on superannuation contributions without penalty.
A key issue for many employers will be working out if in fact they have a superannuation compliance issue, and then quantifying the size of the issue.
What you need to do
- Act now to take advantage of the Amnesty that is likely to be backdated to commence from 24 May 2018.
- Considerations for employers differ depending on the classification of the worker:
| FOR CONTRACTORS | FOR EMPLOYEES |
|---|---|
| Prepare a list of all contractors to the organisation and identify whether or not superannuation contributions have been made in respect of each of these contracts, and at what rate | Check that current and historical superannuation contributions have been paid at the correct rate |
| Categorise these contractors based on the legal entity you have contracted with (eg company, trust, partnership, natural person) | Note that industrial instruments may define 'ordinary time earnings' differently to the Superannuation Guarantee legislation and this may have resulted in an under or overpayment of superannuation for some employees |
| Assess if the contract is wholly or principally for the provision of labour | Where superannuation contributions should have been made but were not, or where superannuation contributions were made, but not at the correct rate, lodge a form with the ATO to disclose and take advantage of the Amnesty |
| Where superannuation contributions should have been made but were not, or where superannuation contributions were made, but not at the correct rate, lodge a form with the ATO to disclose and take advantage of the Amnesty | If superannuation overpayments are identified, decide if steps will be taken to recover these |
| Assess contractual provisions to determine whether any amounts are recoverable from the contractor |
- Consider the financial impact of a superannuation underpayment disclosure, and how to provision to meet this obligation.
- Prepare a communications strategy to manage stakeholder interests. These could include employees, former employees, contractors, former contractors, unions and shareholders.
Superannuation Guarantee Amnesty
The federal government announced a 12 month Superannuation Guarantee Amnesty (the Amnesty) on 24 May 2018. It also introduced a bill giving effect to the Amnesty, the Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill (the Bill).
Ordinarily, when an employer does not make the minimum superannuation contribution of 9.5% of ordinary time earnings in respect of an employee, they must pay the superannuation guarantee charge (SGC). The charge is made up of:
- the unpaid superannuation guarantee (shortfall) amounts;
- interest on the shortfall (currently 10%); and
- an administration fee of $20 per employee, per quarter.
The ATO may also impose further penalties; for example, a penalty of 25% of the SGC.
Under the proposed Amnesty, if an employer has an undeclared superannuation guarantee shortfall for a time period between 1 July 1992 and 31 March 2018, they may disclose it to the ATO between 24 May 2018 and 23 May 2019. They will need to pay the shortfall amounts and interest, but will not be liable for administration fees or further penalties. They will also be able to claim an income tax deduction for payments of shortfall amounts and interest they make in that 12 month period, whereas the SGC is not deductible for income tax purposes.
The Amnesty is subject to the Bill being passed by Parliament, but once it is law, will operate retrospectively from 24 May 2018. In case the Bill does not pass, employers are advised to wait until the legislation is in effect before disclosing shortfalls.
If an employer fails to disclose a superannuation guarantee shortfall during the Amnesty, they will be subject to a minimum 50% penalty once the ATO discovers the shortfall.
Further, employers cannot use the Amnesty for periods that are under audit for superannuation guarantee compliance.
For which workers must an employer make superannuation contributions?
While the Amnesty runs, employers should take the opportunity to ensure that they have paid any required superannuation contributions.
An employer must pay superannuation contributions for:
- employees, whether full-time, part-time or casual, including company directors and temporary residents in Australia; and
- contractors, if their contract is wholly or principally for labour. A contract is principally for labour if more than half of the value of the contract is for labour. Labour may be physical or mental. Generally, a contract is for labour if it pays for a contractor's personal performance of labour (eg where payment is made by the hour) rather than for achievement of a result.
However, an employer must only pay superannuation contributions for these workers if they earn $450 or more (before tax) in a calendar month. They also do not need to pay contributions for part-time employees who are under 18 or who perform private or domestic work. Part-time employees mean those who work 30 hours or less per week.
Other obligations on employers
The Amnesty is an opportune time for employers to undertake a review of their compliance with their obligations in respect of other human resources taxes such as pay as you go withholding, fringe benefits tax, payroll tax and workers' compensation premium calculations.
Employers should be mindful that whether an employer must make payments in respect of employees and contractors varies between these four regimes. The obligations in respect of payroll tax and workers' compensation premium calculations also vary between the States and Territories.
For further information, please contact:
Geoffrey Mann, Partner, Ashurst
geoffrey.mann@ashurst.com
