Most small businesses experience short-term cashflow issues from time to time and prioritising payments can be tricky, i.e. What to pay first?
Assuming the business is solvent and the issue is short term, for example, because of the timing of a payment from a debtor… I’d like to provide you with 8 good reasons to prioritise your Super Contribution Guarantee (SCG) payments.
But first, what is the Super Contribution Guarantee or SCG?
SCG is a compulsory payment of retirement savings payable by employers, on behalf of employees. It is payable if an employee earns more than $450 in a calendar month. The SG rate is currently 9.5% and is payable on ‘ordinary earnings’ https://www.ato.gov.au/Calculators-and-tools/Super-guarantee-contributions/ but not overtime.
Super must be paid at least quarterly by 28th Jan, April, July and October – there are no extensions available. The employee must be given the choice of which super fund they want to use. From 31 October 2016, all businesses must be “Superstream compliant” https://www.ato.gov.au/super/superstream/employers/employer-superstream-faqs/#WhatifImnotready
And here are the 8 reasons:
Reason 1. To claim a tax deduction.
In order to claim a tax deduction, super must be paid on time. In fact, an employee’s super contribution is counted as being paid on the date their super fund receives it, not the date a clearing house receives it from you. Do not leave it until the last minute. Payments received a day or more late cannot be claimed as a tax deduction against business income!
Reason 2. To avoid paper work.
For each employee where super is paid late, the employer is required to complete a form to report the late payment. If the super has not been paid at all, it is paid to the ATO.
Reason 3: To avoid paying interest and fees.
On this late payment form, you are required to calculate interest at a daily rate, currently 10%, and pay $20 for each employee, for every quarter where the super is paid late.
Reason 4. To pay less super.
The 10% interest on late super is calculated on all wages including overtime if any, not just ordinary earnings.
See ‘Superannuation guarantee charge statement and calculator tool’ https://www.ato.gov.au/Calculators-and-tools/Super-guarantee-charge-statement-and-calculator-tool/
Reason 5. To avoid receiving a Super Query Letter from the ATO.
There is a good chance the ATO will be notified. Employees are encouraged to check their super fund statements. If they notice payments missing, the next course of action is to contact the ATO, because the ATO administer SCG compliance.
Reason 6. Because the obligation to pay does not go away.
There is no time limit on this obligation, so the 10% interest and $20 per employee, per quarter will continue ticking over.
Reason 7. To avoid paying the super obligations from your personal funds
From July 2012, directors of companies became personally liable for payment of outstanding super obligations.
Reason 8. BEST ONE (!) To sleep soundly at night.
Putting in systems to ensure the super is paid early and on time gives the business owner one less thing to worry about.
So, what’s the conclusion?
Super is given Concessional treatment from the government to encourage everyone to save for their retirement. Due to the concessional nature, there are strict rules and regulations applied to ensure the system is not abused.
With a bit of fore-planning and commitment to pay early, it’s easy to make the payments. Claim the tax deduction and avoid the extra paperwork.
Consider paying super monthly, so you could only ever be one month a quarter late.