Understanding Late Payment of Superannuation: A Guide for Employers

If you are an employer in Australia, late payment of superannuation can be a serious issue with significant consequences. If you’ve missed a superannuation payment deadline, you might be wondering about the repercussions and how to rectify the situation. 

This guide will walk you through the complexities of paying super late, including the penalties involved and steps to resolve the issue. We’ll also provide strategies to help you avoid future late payments, ensuring you stay compliant with Australian superannuation laws and protect your business from costly mistakes.

What is superannuation and who is responsible for paying it?

Superannuation is a mandatory retirement savings system in Australia. It is designed to provide financial security for employees in their post-work years. As an employer, you are legally obligated to contribute a percentage of your employees’ regular earnings into a superannuation fund. 

The current superannuation guarantee (SG) rate is 11.5% of an employee’s standard earnings. It has increased gradually over the past few years and will reach 12% by the 2025-2026 financial year. 

Employers have the sole responsibility for paying superannuation. You must make payments at least four times a year, with specific due dates for each quarter. 

Note that there is a maximum ‘up to amount’ which you must pay super. For the 2024-2025 tax year, you may pay up to $7,483.05 per quarter. You do not need to pay the 11.5% on the portion of the salary that exceeds this amount. 

Consequences of paying super late

Since super is so important for Australia’s social welfare system, there may be serious late payment superannuation penalties for employers, including:

1. Superannuation Guarantee Charge (SGC): This is the primary penalty for late payments and charges employers interest on the unpaid superannuation amounts. 
2. Administrative penalties: The ATO may impose additional fines for non-compliance.
3. Potential audits: Late payments may trigger ATO scrutiny and audits of your business.
4. Loss of tax deductibility: Late superannuation payments are not tax-deductible, unlike on-time payments.

These consequences can significantly impact your business’s financial health and reputation. The ATO takes a serious view of late superannuation payments, so compliance is crucial. 

What is the superannuation guarantee charge (SGC)?

The Superannuation Guarantee Charge (SGC) is a penalty imposed on employers who fail to pay superannuation on time or in full. It consists of three components:

1. The shortfall amount (unpaid superannuation)
2. Interest (currently 10% per annum)
3. An administration fee of $20 per employee per quarter

The SGC is calculated based on an employee’s total salary or wages, which may be higher than their ordinary earnings used for regular superannuation calculations. This means the SGC can often be more than the original superannuation obligation.

To rectify a late payment, employers must lodge an SGC statement with the ATO within one month of the due date. This statement details the shortfall and calculates the total SGC payable.

SGC Example

Let’s say Company XYZ has an employee, Sam, with the following details for the quarter ending September 30, 2024:

• Regular earnings: $15,000
• Total salary (including overtime): $18,000
• Superannuation Guarantee rate: 11.5%

Company XYZ fails to pay John’s superannuation by the due date of October 28, 2024. They realised their mistake on November 15, 2024, and must now calculate and pay the SGC.

1. Shortfall amount:
   • Based on total salary: $18,000 x 11.5% = $2,070
     (Note: This is higher than the original obligation of $15,000 x 11.5% = $1,725)
2. Interest:
   • 10% per annum, calculated from October 1, 2024 (start of the quarter) to November 15, 2024 (when the SGC statement is lodged)
   • 46 days / 365 days x 10% x $2,070 = $26.10
3. Administration fee:
   • $20 per employee

Total SGC payable: $2,070 (shortfall) + $26.10 (interest) + $20 (admin fee) = $2,116.10

In this example, Company XYZ must pay $2,116.10 to the ATO, which is $391.10 more than the original superannuation obligation of $1,725. Additionally, this amount is not tax-deductible for the company, unlike regular on-time superannuation payments.

Can late superannuation payments be claimed as a tax deduction?

Unlike regular, on-time superannuation payments, late payments and associated penalties cannot be claimed as tax deductions. This includes:

1. The SGC amount
2. Any interest charged
3. Administrative fees

This non-deductibility adds another layer of financial impact for employers, as they lose the tax benefit they would have received had the payment been made on time. It’s a stark reminder of the importance of meeting superannuation obligations promptly.

How to rectify late superannuation payments

If your business realises that it’s late on a superannuation payment, follow these steps to address the problem. The sooner you declare and pay later super, the fewer penalties you will face. 

1. Lodge an SGC statement: Make sure to do this within one month of the missed due date.
2. Calculate the SGC:
   • Determine the shortfall amount
   • Calculate the interest (10% per annum)
   • Add the $20 per employee administration fee
3. Pay the SGC to the ATO: The ATO will then distribute the funds to your employees’ super funds.

If you’ve already paid the super to the fund, albeit late, you may be able to use this as an offset against the SGC. This may reduce your SGC amount, but the offset amount will remain non-taxable. An alternative is to carry forward the late payment as a prepayment for future super contributions, which would remain tax-deductible.

The ideal option depends on the amount, tax responsibilities, and your unique financial situation. If unsure, you can consult with a business tax advisor to make the right decision. 

How to avoid paying superannuation late in the future

The best way to protect yourself from costly fees and penalties related to superannuation is to always pay super on time. Here are some strategies that will help you do so. 

Set up automatic payments

Use accounting software or an online banking system to schedule automatic superannuation payments. Most major Australian banks and accounting platforms like MYOB, and others offer this functionality. For example:

• Set up recurring payments in your online banking portal to transfer funds to your default super fund or clearing house on the 21st of each month (a week before the quarterly due date).
• Configure your payroll software to automatically calculate and process super payments along with each pay run.

Use a clearing house

The ATO offers a free Small Business Superannuation Clearing House for businesses with 19 or fewer employees or an annual aggregated turnover of less than $10 million. Alternatively, commercial clearing houses like SuperChoice or ClickSuper can simplify the process of paying multiple super funds. Benefits include:

• Single payment and data transfer for all employee super contributions
• Reduced administrative burden and potential for errors
• Payments considered “paid” on the date received by the clearing house (for the ATO’s service)

Stay informed

Keep up to date with ATO requirements and due dates:

• Subscribe to the ATO’s email updates for employers
• Set reminders in your calendar for quarterly super due dates (28 October, 28 January, 28 April, 28 July)
• Regularly check the ATO website for any changes to superannuation legislation or reporting requirements

Prioritise super payments

Treat superannuation as a non-negotiable expense, similar to wages:

• Include super contributions in your cash flow forecasts and budgeting
• Set aside funds for super payments in a separate account throughout the quarter
• Consider paying super monthly or with each pay run to avoid a large quarterly expense

Regular reconciliations

Perform regular checks to ensure all payments are correct and on time:

• Reconcile super payments against payroll records monthly
• Use the ATO’s SuperStream compliance checking service to verify your payment data
• Conduct quarterly reviews of super obligations before the due date to catch any discrepancies

By implementing these strategies, Australian employers can significantly reduce the risk of late superannuation payments and avoid the associated penalties and administrative burdens.

FAQ

How is the superannuation guarantee charge calculated?

The SGC is calculated by adding the unpaid super amount, 10% annual interest, and a $20 administration fee per employee per quarter. The amount due is based on total salary, which may be higher than regular earnings used for on-time super calculations.

What happens if an employer pays superannuation late?

If an employer pays super late, they must lodge an SGC statement with the ATO and pay the SGC. This includes the late amount, interest, and an administration fee. The payment also ceases to be tax deductible.

How can an employer fix a late superannuation payment?

An employer can fix a late super payment by lodging an SGC statement with the ATO within a month of the due date, calculating the SGC (including interest and fees), and paying the amount to the ATO. 

Final thoughts

Late payment of superannuation is a serious matter with significant financial and legal consequences for employers in Australia. By understanding your obligations, the penalties for non-compliance, and the steps to rectify late payments, you can better manage your business’s superannuation responsibilities. 

Remember, prevention is always better than cure. Implementing robust systems and processes to ensure timely superannuation payments will save you from the stress and financial burden of dealing with late payments. If you need help sorting out super payments for your employees, get a hold of our business tax compliance services at Lawpath. We are here to help!