Superannuation Guarantee (SG) payments for employees are due on the 28th day after the end of each quarter. The penalties for making this payment late are severe and rigorously enforced by the ATO. Even if a payment falls one day late, the additional cost will always include:
- The requirement to lodge a Superannuation Guarantee Charge (SGC) statement.
- An admin fee per employee
- A requirement to pay super on all salaries and wages (including overtime)
- Lost tax deduction for the payment
There is no leeway for these first 5 items.
Other possible costs:
- Penalties up to 200% of the “Super Guarantee Charge”
- Director’s personal liability
- Possible criminal charges for directors
- Other considerations
- The Superannuation Guarantee Charge Statement – This time-consuming form needs to be lodged with the ATO any time the SG payment for a quarter is made late. It is due one calendar month after the SG due date. The form calculates the super, admin and interest amounts payable.
- An admin fee per employee – An automatic non-deductible admin fee payable of $20 per employee, per quarter.
- Interest – This is charged at a nominal rate of 10% and is calculated from the beginning of the relevant quarter until the lodgement of the SGC statement. It is paid to the ATO as part of the SGC, then paid to the employee’s super accounts by the ATO as a concessional contribution. The interest cannot be reduced or waived.
- Requirement to pay super on all salaries and wages – Normally SG is payable on Ordinary Time Earnings (OTE), which doesn’t include overtime. When calculating the SG shortfall, the amount is calculated on all salary and wages.
- Lost tax deduction on late super – No amount of the SGC statement payment, including the superannuation, is tax deductible under s26.95 of ITAA97. This will likely be the largest cost to a business when the super is paid only slightly late.
- 200% “Part 7” Penalty – This is a further penalty that can be imposed by the ATO for late lodgement of an SGC statement. The default rate of the penalty is 200% of the SGC amount.
- Director’s personal liability – The ATO may issue a Director Penalty Notice (DPN) for unpaid SGC amounts, making directors personally liable. If the SGC statement was lodged on time, the DPN can be negated by appointing an administrator within 21 days. If the SGC statement was lodged late, the only way to settle the DPN is by paying the amount in full. The ATO is able to estimate SG amounts and assess them to directors even after a company has been liquidated.
- Possible criminal charges for directors – Since 2019, the Commissioner of Taxation has had the power to pursue criminal penalties for serious breaches of SG obligations, including up to 12 months imprisonment for directors.
- Single Touch Payroll (STP) and electronic super reporting means the ATO has real time data on late super payments. There has been an increase in engagement by the ATO in the area.
- There is no minimum dollar amount the ATO will chase for SGC. They will fully pursue every dollar.
- Since there is no discretion under the law, it is irrelevant if the SG is owed to a sole director and shareholder.
- Prospective purchasers of businesses will likely look back at a number of years of super payments to ensure there are no unlodged SGC statements during the due diligence process.
- Employees are able to check their super balances more easily than ever. The ATO will investigate every single complaint they receive in relation to unpaid super.
When is super considered paid?
Super is considered paid when it is received in the employee’s super fund bank account. Some clearing houses advise employers to allow 10 business days, but this should be checked with the clearing house used.
Assume SmallBus Pty Ltd has 10 employees and the wages paid in the March 2022 quarter were $250,000 with super accrued during the quarter of $25,000. SmallBus Pty Ltd makes the $25,000 payment in full on 27 April 2022, but the payment doesn’t reach the employee’s super funds until April 29. No SGC statement is lodged until 1 April 2023 after a letter is received from the ATO.
The non-negotiable cost of the late payment would be:
|Lost tax deduction at 25%||$6,250|
Additionally, the total penalty available to the ATO would be 200% or $19,132. Assume this is reduced by the ATO to 100% or $9,566.
Total cost of paying the super one day late: $19,132
On top of this, the directors could be personally liable for the SGC amount, even if SmallBus Pty Ltd were placed into liquidation.
Tips for reducing SGC risk:
- Paying super monthly or together with each pay run will reduce the overall cost of any mistake at the end of a quarter
- Make payments well in advance of the due date
- Monitor the super payable account to ensure super accrued from payroll is matched to payments