The Employer’s Guide to Avoiding Hefty Penalties

Superannuation obviously plays a key role in most Australians’ retirement plans. And with our ageing population where there will be more and more retirees and relatively fewer people of working age, the federal government is quite literally banking on the effectiveness of superannuation to create a generation of self-funded retirees.

That’s why it’s of paramount importance to the government to ensure that employers—who pay their employees’ compulsory superannuation—comply with the requirements.

This means that as an employer you are subject to very strict due dates and incredibly harsh penalties for non-compliance in relation to payment of your employees’ superannuation.

This article will give you a broad overview of the rules regarding timing of super payments and the consequences of late payments but please note it is very important that you seek professional advice and guidance for your specific situation.

Four due dates for super payments

  • 28 April for the January to March quarter
  • 28 July for the April to June quarter
  • 28 October for the July to September quarter
  • 28 January for the October to December quarter

An important detail about these dates

Note that the payment must reach the employee’s super fund by the due date. This means you should be processing your super payments at least one week prior to the due date to allow for processing time. If you leave it until the due date to make your super payments, you’re already late.

Here’s why that will hurt…

What happens if you pay your employees’ superannuation late?

  1. You lose the tax deduction: You will be disallowed a tax deduction for the superannuation payment and associated penalties.
  2. You may have to pay even more super: Super will be calculated on an employees’ total remuneration, not just the wages that are normally subject to super. For example, let’s say you have a staff member who works overtime at penalty rates and you are normally not required to pay super on the overtime. As soon as you are late on a super payment, you will be required to pay 10% super on the overtime.
  3. You have to pay an interest penalty: You are required to notify the Australian Tax Office (ATO) of the late or unpaid amount within four weeks of the due date. (We will help you do this by preparing an SGC Statement). The ATO will charge you:
    • An interest penalty calculated at a rate of 10% p.a. from the 1st day of the quarter that the superannuation payment is related to. That’s four months’ interest.
    • An administration fee of $20 per staff member per quarter.
  1. There is absolutely no ‘wiggle room’: The ATO are statutorily required to enforce the due dates. It doesn’t matter what circumstances lead to a late payment. Even if it’s only one day late and not your fault, the ATO have no ability to apply discretion.

Do the same rules apply to your own superannuation payments?

Yes, they do. In the eyes of the ATO, payment of your own super is just as important as payment of your employees’ super.

What if you can’t afford to pay the superannuation?

  • Still notify: You are still required to notify the ATO. Don’t put your head in the sand and hope the problem will go away, as that will cost you.
  • Avoid penalties: Even if you don’t have the cash available to pay super, by lodging the report on time you avoid excessive penalties. This is crucial because the penalties will otherwise grow over time and by keeping the ATO informed, you avoid the situation where they come after you personally for the unpaid super.
  • Payment plan: You should be able to enter into a payment plan to pay the superannuation over time, albeit with interest continually accruing.

What happens if you pay super late and do not notify the ATO?

If the ATO instigate an audit and determine that a super payment was made late you will be charged penalties consisting of:

  • You might have to pay MUCH more interest: Interest is calculated from the first day of the respective quarter, right through to the date the audit is conducted. This means you could pay interest calculated over many months—or even years—even though the super payment may have only been paid a few days late!
  • Even more admin fees: A $20 admin fee per employee per quarter is added
  • Potentially huge penalties: Then the ATO will likely charge penalties of between 100% to 200% of the outstanding amount. (For example, if you owed $10,000 of super, the ATO could charge an additional $10,000-$20,000 of penalties on top.

If your business ran into financial distress:

  • The liability becomes personal: The Director(s) will be held personally liable for unpaid superannuation and penalties. This is solely because the business did not notify the ATO of the missed payment within 4 weeks of the due date. This is a massive consequence.
  • A potential criminal record in the future: Recently there has been political dialogue about treating a lack of superannuation compliance as a criminal act, leading to potential jail time for offenders. To us, this seems totally insane, but sadly it’s a possibility.
  • The problem only gets worse over time: The issue and your exposure to an increasing risk will never go away. There are no time limits to how far back the ATO will look.
  • A ballooning super liability could cost you your business, and more: The reality is that a recurrence of late payments and lack of reporting can become very expensive to fix. It can easily become more than the business can afford to pay and then once the Directors’ become personally liable, the family home and other personal assets could be on the line.

What are the chances of being caught if you don’t lodge an SGC Statement?

Superannuation audits are becoming more common and targeted, and we believe the ATO will only get better at identifying late or non-payment of super.

Three factors contributing to this include:

  1. Media: Increased media attention has resulted in employees being more aware of their superannuation funds and hence more likely to make a complaint if they haven’t been paid.
  2. SuperStream: SuperStream rules are now in place, which means that all super payments are going through centralised processing providers who automatically share data with the ATO.
  3. Single Touch Payroll: With STP now in place, the ATO know on a payroll-by-payroll basis, what super payments are owed.

It simply isn’t an option to ignore the rules, regardless of how insanely ridiculous they are.

Example Scenario 1:

One quarter is paid just 5 days late

Cranes Pty Ltd is a small business, typical of most small businesses we work with. They maintain good records and make every effort to keep up with their compliance obligations.

Their 10 staff work both ordinary hours and overtime hours. Super is payable on the ordinary hours but not the overtime.

They pay super of approximately $10,000 per quarter, however they paid super for the September 2020 quarter 5 days late. This meant their employees’ super funds received the funds on 3 November 2020 when it was due by 28 October 2020. Given their good history and apparent minor indiscretion, they chose not to notify the ATO.

However, two years later an ex-employee makes an unfounded complaint to the ATO, which results in an audit.

The outcome of the audit would be:

  • Interest penalties of $2,000 (2 years of interest at 10%)
  • Admin fees of $200 (10 employees x $20)
  • Additional super on the overtime earnings of $2,000
  • The ATO then levies a 100% penalty, calculated on the original super of $10,000 + interest of $2,000 + Admin fees of $200 + the additional overtime super of $2,000. This results in a penalty of $14,200.
  • This means Cranes Pty Ltd now need to pay an additional $18,400 of interest, super on overtime hours, admin fees and penalties, on top of the $10,000 in super that they had already paid (albeit a little late). Cranes Pty Ltd are not allowed to claim a tax deduction for any of these payments.

Remember, all the business did was pay super five days late and the cost to the business is exorbitant. It’s effectively a penalty of $3,680 per day, on the 5 days they were late.

Horror stories like this can happen. It’s important you’re aware of the magnitude of the superannuation rules. They’re not to be taken lightly.

Example Scenario 2:

Four quarters are paid late

Continuing the above example, if Cranes Pty Ltd hadn’t paid their quarterly $10,000 superannuation payments for a full year they could face the following repercussions when faced with an ATO audit:

  • $6,000 of non-deductible interest charges
  • $54,800 of non-deductible penalties (although the ATO could be even harsher)
  • $800 of non-deductible ATO administration fees
  • $8,000 of additional non-deductible super on overtime hours
  • The $40,000 of ordinary super will be non-deductible

In summary, rather than just owing $40,000 of super for the year, they would now owe at least $109,600 of non-deductible super and penalties. That’s almost $70,000 in avoidable interest and penalties, not to mention the stress and additional wasted time and expenses dealing with the issue.

As you can see, the problem can snowball out of control very quickly.

How Eagle Financial approaches superannuation compliance

Mitigation—helping you avoid the problem in the first place—is always our primary focus.

Here are 6 ways we help you avoid super headaches:

  • Set up a default super fund: We’ll assist you to arrange a Default Super Fund for your employees as soon as you begin employing. This way, even if a new staff member is slow in providing you their fund details you can still pay their super on time. No need to wait, just pay it to the default fund.
  • Pay smaller amounts, more often: We’ll guide you in working out whether it would make sense for your business to pay super at more regular intervals – for example monthly or even at the time of payroll.
  • Make payment and reporting easy: Xero makes it really easy
  • Open communication with each other: If you realise an issue has occurred and your super obligations have not been met, reach out to us at the first opportunity.
  • Communication with the ATO: If any issues are discovered, such as a late payment in the past, we will assist you in lodging the appropriate report with the ATO and all associated calculations. The costs and risks are simply too high not to comply.
  • Help you avoid personal liability: Even if you don’t have the cash available to pay super, by lodging the report on time you not only avoid excessive penalties that grow with time but you also avoid—if you’re trading from a company or a trust—being held personally liable for the payment.

As you can see, the superannuation rules are strict and the penalties are heavy-handed. It pays to know the rules, and play by the rules.

In our next article we’ll address the Frequently Asked Questions we get asked by business owners about superannuation compliance.