Compulsory superannuation has been around for more than 20 years. Despite this, some business owners still don’t know how important it is to pay employees super in full and on time. And what to do if they can’t pay. Failing to pay super can have significant consequences for your business and you personally as director.
At a rate of 9.5% superannuation liabilities can add up over a quarterly period. In addition to GST and PAYG Withholding being due on your BAS around the same time, it can be easy to let super payments slip by when cashflow is tight. It might feel as though missing super payments will go unnoticed. But employees and the Australian Taxation Office (ATO) are paying close attention.
When super isn’t paid on time it becomes superannuation guarantee charge payable to the ATO which ensures workers receive their entitled benefits from employers.
The state of super in Australia
The ATO wrote off $219 million of superannuation guarantee charge in the 2017 financial year. Further, data provided to the Senate Committee considering the proposed Superannuation Measures Treasury Laws Amendment Bill showed the number of unique employers who lodged a superannuation guarantee charge statement in the 2017–18 financial year was 17,712; up nearly 60% from the 11,096 employers who lodged them in the preceding financial year.
Additionally, the number of employees who had lodged complaints against their employers also skyrocketed over 56%, from 8,220 in 2016–17 to 12,903 in 2017–18. As a result, nearly 17,000 businesses had their superannuation records checked by the ATO in the 2017 financial year.
What is superannuation guarantee charge (SGC)?
The superannuation guarantee charge (SGC) is a financial penalty. It will apply when an employer fails to pay the required amount of super to their employees by the quarterly due dates.
The charge consists of:
- Superannuation guarantee shortfall, being the balance of unpaid super due on your employee’s salary or wages
- An additional 10% interest on those amounts
- An administration fee charged at $20 per employee, per quarter
Employers must report and pay to the ATO any missed super payments as SGC on a Quarterly SGC Statement.
Consequences of not paying super
The ATO prioritises the collection of unpaid SGC debts. With the introduction of Single Touch Payroll in July 2018, real-time payroll reporting will make it easier for the ATO to keep track of missed or late super payments.
If you don’t attempt to work with the ATO to pay your super, they make take stronger action. This could include:
SGC audit or review
The ATO may conduct an SGC audit or review to calculate your unpaid super debt and ensure you have reported and paid correctly. This may occur if you have an unpaid super debt and have not lodged a Quarterly SGC Statement, or if there are discrepancies with your reported figures.
Director penalty notices
The ATO can issue a director penalty notice to make a director personally liable for two types of tax debts of a company – PAYG and SGC. If proposed laws are introduced, this will also include GST. It’s important to note that if a Quarterly SGC Statement is lodged within three months of the due date for each quarter that you have an unpaid super debt, as a director you can avoid personal liability by appointing a liquidator or administrator to your company. Otherwise, you’re personally liable for your company’s unpaid SGC debt.
The ATO may send a garnishee notice to someone who owes you money, such as your bank or a customer. They will then be required to pay funds held on your behalf to the ATO to recover a tax debt. This means your bank account could be emptied out.
If you know you can’t afford to pay your employees super, you should contact the ATO immediately and request an extension.
What to do if you can’t afford to pay your superannuation each quarter
If you know you can’t afford to pay your employees’ super by the due dates, you should:
- Lodge a Quarterly SGC Statement within three months of the quarter due date.
- Contact the ATO to enter into an ATO payment arrangement to pay the debt in full. If you are unable to pay the debt or enter into an arrangement, call us for urgent assistance.
Payment Due Dates
|1||1 July – 30 September||28 November|
|2||1 October – 31 December||28 February|
|3||1 1 January – 31 March||28 May|
|4||1 April – 30 June||28 August|
Once you have lodged and paid the SGC, the ATO will distribute the super guarantee shortfall amount plus the interest to your employees.
If you have missed or are unable to afford super payments, follow our recommended steps above. If cashflow at the time of lodgement is an ongoing issue, you may need to consult an insolvency advisor. It is illegal for a business to trade while insolvent.
Thankfully, there are options available if you have a SGC debt, or if your company may be insolvent. To discuss your options, give Tax Debt Resolved a call on 1300 628 586.
For more information on tax debt solutions, check out our tax debt page.