The upcoming changes to the superannuation guarantee (SG) arrangements include:
> SG payment calculations must be based on a minimum of an employee’s ordinary time earnings (OTE);
> SG contributions for employees who don’t choose their own fund can generally only be made to a default super fund that provides a minimum level of death cover; and
> late contributions will count towards reducing the superannuation guarantee charge liability payable by an employer.
Note: The first two measures will apply from July 1, 2008, while the third is still before Parliament.
Note: This article does not address defined benefit arrangements.
SG payments must be based on an employee’s OTE
From July 1, 2008, employers must calculate their SG contributions for eligible employees on a minimum of employees’ OTE.
Currently, some employers are entitled to use a notional earnings base (sometimes called superannuation salary) that is less than OTE. Employers will still be able to use an earnings base higher than OTE.
A clear explanation of OTEis provided in the ATO Superannuation Guarantee Ruling (SGR) 94/4. Broadly, OTE includes amounts an employee earns for ordinary hours of work, including over-award payments, shift or casual loading, commissions, allowances, performance-based bonuses and paid leave. It does not include overtime payments or lump sum payments made on the termination of employment in relation to accrued leave.
While this change may increase employment costs, it will simplify the administration of the SG laws, increase superannuation savings for those affected and ensure parity for workers within the same or similar industries.
Key actions employers can undertake before July 1, 2008
> Review earnings bases in workplace agreements, awards and contracts for all eligible employees to ensure that a minimum of OTE will be used to determine SG contributions;
> OTE is specifically defined — follow the checklist in ATO SGR 94/4 to ensure it is accurately determined for each employee;
> review and prepare updates to software and/or payroll processes used to calculate SG contributions;
> if applicable, ensure that higher earnings bases in workplace agreements, awards and contracts for various classes of employees will not be automatically overridden by the change to OTE; and
> inform employees of the changes.
Default super funds must offer minimum levels of death cover
From July 1, 2008, subject to certain exceptions outlined below, when an eligible employee does not choose their own fund, employers will only be able to make SG contributions to a default fund that provides minimum death cover. To meet these requirements:
> the premium paid by the fund must be at least $0.50 per week (or equivalent) for members under age 56; or
> the fund must provide the minimum age-based level of cover set out in the table.
If the current default fund does not meet these requirements, the employer will need to notify fund members and contribute to a different default fund. Failure to do so may result in the employer being subject to penalties.
Exceptions
Employers will be able to continue to make SG contributions to a default fund that doesn’t provide the minimum amount of death cover if:
> the fund’s insurer refuses to provide the minimum cover for a particular employee. This could be, for example, on the grounds of the employee’s health, high-risk occupation or hours of work;
> the default fund for an eligible employee is a retirement savings account or capital guaranteed fund;
> the employer is making contributions for the employee under a Federal Award fund;
> the employer provides an equivalent level of minimum death cover in a separate arrangement; and
> the employer was contributing to the fund for the eligible employee at March 11, 2005, and at that time the fund rules ensured that a benefit of at least $50,000 would be payable in the event of the employee’s death. This also applies to successor funds.
Note: Up until June 30, 2008, an exception will also apply if the employer contributed to the fund for at least one eligible employee before July 1, 2005.
Late contributions will count towards reducing the SGC liability
Under current SG law, employers are required to make compulsory super contributions on behalf of eligible employees by the quarterly due dates.
If an employer does not meet these deadlines, but pays the required contributions within a month of the due date, the superannuation guarantee charge (SGC) liability will be reduced by the value of the late contributions made.
However, if an employer makes SG contributions to the fund more than a month late, they will also be required to pay the outstanding contributions to the Australian Taxation Office (ATO). This means the employer effectively pays the same amount twice.
On March 20, 2008, the Government confirmed that employers who are more than one month overdue would be able to use late SG contributions paid to offset part of their SGC liability — effectively removing the double payment.
The late contribution can only be offset against a SGC liability that relates to the same quarter and the same employee. That is, a contribution made in a later quarter for an employee that is made in respect of that quarter can’t then be applied to offset the earlier SGC liability.
This change will apply to employers from the date of Royal Assent, including employers who have been assessed with an SGC liability that remains unpaid before this date. Employers must make a formal election (within four years after the SGC became payable) to use the late contribution offset against their SGC liability.
This will provide a fairer treatment for well-meaning employers who incorrectly make late SG payments directly to their employer’s super fund instead of the ATO.
Andrew Lawless is the technical services manager at MLC.
