Determining how much superannuation guarantee contributions should be paid by an employer in respect of their employees, sounds such a simple calculation.

Isn’t it just 9.5 per cent of the employees’ wages?  How hard could it be to work this out?

And if it’s that easy, surely a business who has paid the wrong super must be trying to rip off their staff!

Well the reality is that is not that simple.

There are a number of carve outs in the superannuation legislation which significantly increases the complexity of calculating the correct superannuation guarantee contributions for each employee.

As a chartered accountant for over 30 years and an outsourced chief financial officer (CFO) for many small and medium businesses for 20 of those years, I have seen many business owners innocently pay the wrong superannuation guarantee contributions.

Why?

Because not all business owners have the knowledge, time, or the appropriate systems, to understand how the carve outs impact on their superannuation guarantee obligations.

Ordinary Time Earnings

The first carve out that can inadvertently cause an employer to pay the wrong superannuation guarantee contribution is around ordinary time earnings.

For most workers, the employee is obligated to pay 9.5 per cent of the workers ordinary time earnings (OTE).  Which is not their total earnings.  OTE refers to the amount the employee earns for their ordinary hours of work.  

Now you may say that working out someone’s ordinary hours of work is simple.  Well it is not!

Let’s take the example of Sally who runs several retail shops across Australia with her head office in Sydney.  On Sunday, she employees two casuals.  First is Mark who works in one of the retail stores.  The second is Ayla who works in head office doing accounts work. 

Any hours worked on the Sunday between 9am and 6pm are considered to be ordinary hours for Mark who is employed under the General Retail Industry Award.  But for Ayla, who should be employed under the Clerks – Private Sector Award, any hours worked on a Sunday are not considered to be ordinary hours (as decided by the High Court). 

Let’s look at the example of Carlos who runs a smash repair business.  Josephine in the office works an hour of overtime about twice a month.  But Manny in the workshop regularly works an hour of about every second day. 

Typically overtime hours are not treated as ordinary hours.  But as Bluescope Steel found out in the Federal Court, that is not always the case.  If the employees’ overtime, becomes so regular and normal, these overtime hours could become ‘ordinary hours’ of work.  So how does Carlos determine whether Josephine or Manny’s overtime has become normal and included as ordinary hours of work?

And there are lots more examples that cause confusion with the employer and employee.

The $450 monthly income threshold

The second carve out that can inadvertently cause an employer to pay the wrong superannuation guarantee contribution is around the $450 monthly income threshold.  Under this threshold, if you earn less than $450 a month, the employer has no obligation to pay the 9.5 per cent superannuation guarantee contribution on these earnings.

Now if you are paid monthly, then this threshold is not a problem. 

But what if you are not paid monthly. 

Let’s take the example of Riya who earns $100 a week.  For most months there is four weekly pay runs so Riya is not entitled to any superannuation.  But in some months there are five weekly pay runs.  And in those months Riya is entitled to superannuation.  For the first four pay periods Riya is not yet entitled to any superannuation.  In the last pay period, Riya is now entitled to superannuation, but not 9.5 per cent of $100, but 9.5 per cent of $500. 

How many business owners would get this correct?    And how many employees would know if they got the right superannuation?

Now I understand that this threshold was introduced back when business wrote cheques to pay superannuation (often one cheque per employee) and this was to reduce the administrative burden of writing a lot off small cheques.   But today it is all electronic and it takes no more effort to make a $2,000 payment than an extra $20 payment. 

Eliminate the Confusion – Remove the Carve outs

These carve outs cause confusion.    The various court decisions on superannuation guarantee contributions cause confusion as the employer does not know if they apply to them.

And as a result, as I have seen many times, neither the employer or employee know the correct amount of superannuation guarantee contribution for each pay period.

Hence why I say it’s time to remove some of the complexity around the calculation of superannuation guarantee contributions.  It would be far simpler that any payment made to the employee which is subject to pay as you go income tax (their gross pay for that pay period) is included in the calculation to determine how much superannuation guarantee contributions are to be made.  Irrespective of how the employee earned it.  And there is no minimum threshold. 

If the gross pay for the employee was $500 that week, irrespective of what makes up that pay, the employee’s superannuation guarantee contribution is $47.50 for that week.

If the gross pay for the employee was $4,000 that month, irrespective of what makes up that pay, the employee’s superannuation guarantee contribution is $380 for that month.

This would make it simpler for employers as there is no need to double check how each payment is classified. They could also double check their superannuation obligations quickly by ensuring it is 9.5 per cent of gross payroll payments.

And it is simpler for employees.  The superannuation on their pay slip should just be 9.5 per cent of their gross pay.  If not – they know the employer has made a mistake and they can challenge this.

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