How do super guarantee contributions work?

At present, employers must make super guarantee contributions for eligible employees worth 9.5 per cent of the employees’ pre-tax wages, up to a fixed limit.  

The Superannuation Guarantee (SG), introduced in 1992, requires employers to make compulsory super contributions for certain employees.

The contribution rate used to be 3 per cent of the employee’s untaxed earnings and, over the years, it has increased to the current rate of 9.5 per cent. It’s expected to increase to 10 per cent in July 2021, and increase by 0.5 per cent every year to reach 12% in 2025. These contributions must be paid into either a super fund chosen by the employee or the employer’s default super fund every financial quarter.

To qualify for SG contributions, employees who are over 18 should be earning $450 a month before tax. For employees under 18, they need to have worked 30 hours a week and earned at least $450 to be eligible. The earnings can take the form of allowances, bonuses, commissions, shift or leave loadings, and wages, but not overtime pay. The rules around super guarantees  apply to all employees, whether employed full-time, part-time, casually or as contractors. Employers paying SG contributions for contractors will need to calculate which part of their wages paid for their labour.  

Are there any super guarantee contribution caps?

Employers are required by law to contribute at least 9.5 per cent of an eligible employee’s pre-tax wages as the super guarantee contribution. While super laws don’t stipulate an upper limit on such contributions, employers can choose to make limited super contributions for employees earning more than the maximum super contribution base (MSCB).

This MSCB, currently $57,090 per quarter, indicates that the employee earns a significantly high income, possibly sufficient to make extra super contributions independently. If you earn more than $57,090 in each financial quarter, your employer need not make a quarterly SG contribution of more than $5,423.55, which is 9.5 per cent of $57,090. The MSCB has an indexed value, based on the average weekly ordinary time earnings (AWOTE) and is updated every year in February. 

You should remember that super guarantee contributions count as concessional contributions when it comes to the tax rate applied. But this concessional tax rate is only applicable if the employee receives eligible contributions worth $25,000 or less over the financial year.

Concessional contributions include salary-sacrificed super contributions and tax-deductible personal (after-tax) contributions. They are separate from employers’ SG contributions. Suppose, an employee receives more than $25,000 in concessional contributions. In that case, they may have to pay tax at the non-concessional rate of 47 per cent.

Suppose you earn $57,090 or more every quarter. In that case, you’d probably receive $5,423.55 as quarterly SG contributions from your employer, which amounts to $21,694.20 over the year. You can then make extra concessional contributions of $3,305.80 to stay within the limit of $25,000.  

What happens if an employer makes late super guarantee contributions?

The Australian Taxation Office (ATO) expects employers to transfer both SG contributions and data at least every quarter by a specific deadline. Most employers need to ensure that the contributions have been received by their employees’ super funds by this date.

If employers fail to discharge their super obligations by the deadline, they have to pay the SG charge and lodge the SG charge statement with the ATO. These actions should be completed within a month of the SG contributions deadline. The ATO can declare employers who fail to do so non-compliant and try to collect the unpaid super contributions.

Employees are also encouraged to keep track of their super fund balance and follow up with employers if they miss making SG contributions by the deadline. They can also file a complaint with the ATO if the employer cannot explain the delay or misses further contributions.

If the ATO chooses to investigate the employer and collect the overdue SG contributions, they must provide updates in writing. Once the super contributions are collected by the ATO, they will be transferred to the employee’s super fund.     

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