We all aspire towards financial freedom and superannuation is one of the ways for you and your employees to get there.
What is Superannuation?
Superannuation (‘super’) is a term used to describe compulsory payments made to a ‘super fund’ on a regular basis. They are compulsory by law (for anyone 18 years or over) and are payments made by an employer out of an employee’s salary. Generally speaking, an employee will have access to their super fund when they retire.
Do I Have to Pay Super and Why?
Yes, if your employees are paid $450 or more per month, you are required to pay super contributions to your employees’ chosen fund. For employers, super needs to be paid in each quarter of the year – on 28 October, 28 January, 28 April and 28 July.
For the 2015/2016 and 2016/2017 financial years the compulsory contribution rate is 9.5% of annual income.
You are classified as an employer if you have hired someone under a written or verbal employment contract.
Who do I pay?
Super contributions are required to be made to:
- Full-time, part-time and casual employees;
- Company directors; and
- Family members involved in the business.
Who Don’t I pay?
You are not required to pay employees who work outside of Australia who are not considered permanent residents for tax purposes. E.g. if you are outsourcing your accounting work, you are not required to contribute super payments.
You are required to make super payments to contractors if their labour is worth more than half of the value of the total contract. So, for example when you contract a plumber to fix your toilet, you will be paying for their labour as well as their parts and GST etc. If the labour costs more than half of the total bill, you will need to pay super on the labour component of the bill. On the other hand, if it is not half of the bill, you will not be required to pay super to the contractor.
The same 9.5% rate applies to contractors, however you are only required to pay super on the labour component of the contract.
Use this link to determine whether the person(s) you are hiring are classified as a contractor:ATO Quiz
I’m a Sole Trader/Self-Employed or Partnership
No, you are not required to make compulsory super payments to yourself. However, the super fund still exists as an option for you to save for retirement.
Benefits of Voluntarily Contributing to Super
In most cases, self-employed people are able to claim a full deduction for their contributions. That is, if you are earning less than 10% of your income from an employer, this would be a strong indication that you are self employed and would hence be able to claim a full tax deduction on your super payments. However, there is a limit for which the payments are tax deductible – payments up to $25 000 per year.
Also, for voluntary contributions up to a maximum of $500, the government will ‘co-contribute’ to your super fund.
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