The Christmas season is a busy time, which means many employers pay their employees to work additional hours in order to meet pre-Christmas business demands. It is also a festive time when some employers pay their employees bonuses and other gifts to reward high performance and dedication.
In this article, we explain your super guarantee obligations when making these additional payments to your employees. By getting this right from the outset you will avoid any potential problems with the ATO at a later stage (as a super problem with the ATO is certainly not the headache you want after the Christmas season!)
What are your super guarantee obligations?
As an employer, you are liable to make a minimum level of contributions in respect of an employee into that employee’s chosen fund within 28 days of the end of the relevant quarter. This obligation may attach to additional payments such as bonuses and gifts given to employees over the Christmas period.
The current level of super support required to be provided by you is 9.5% of that employee’s “ordinary time earnings” per quarter. If an employee is covered by an industrial instrument, such as an award or employment agreement, be sure to check whether you are required to pay a higher rate of super guarantee percentage under those industrial instruments.
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What are ordinary time earnings?
To determine your super obligations, it is essential to consider whether any payments made by you to your employees fall within the scope of ordinary time earnings. Ordinary time earnings are used to calculate the minimum super guarantee contribution that employers must pay into each employee’s chosen super fund.
Ordinary time earnings are the earnings (ie salary or wages) in respect of an employee’s ordinary hours of work and earnings consisting of over-award payments, shift-loading or commission.
Generally, an employee’s ordinary hours of work will be specified in either, or both, of his or her relevant award or agreement. The award or agreement may not necessarily use the exact expression “ordinary hours of work” to define these hours, but may instead draw a distinction between normal or customary hours of
work and other hours of work by, for example, identifying the other hours as a separate component of total pay, or by prescribing overtime rates for the additional hours. Any hours worked in excess of, or outside the span (if any) of, those specified ordinary hours of work are not part of the employee’s ordinary hours of work. A common example of the span of ordinary hours of work is 8am to 6pm, Monday to Friday.
If an employee’s ordinary hours of work are not stated in a relevant award or agreement, an employee’s ordinary hours of work are the normal, regular, usual or customary hours worked by the employee, as determined in all the circumstances of the case. If it is not possible or practicable to apply this test, then the employee’s actual hours of work may be his or her ordinary hours of work.
What kinds of earnings fall within the scope of ordinary time earnings?
It can sometimes be a difficult task to determine whether payments are ordinary time earnings and therefore attract super guarantee liability.
The table on the following page provides an overview on whether certain types of additional earnings or payments fall within the scope of ordinary time earnings and are therefore “superannuable”. However, each case is different and should be considered on its own merits.
Super payable on common payments
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This table is by no means an exhaustive overview of what earnings fall within the scope of ordinary time earnings and are therefore superannuable. Detailed guidance on ordinary time earnings is available on ATO’s website (refer to ATO Superannuation Guarantee Ruling 2009/2).
An employer must pay the super guarantee contribution into each employee’s chosen super fund within 28 days of the end of each relevant quarter. The deadlines for each quarter are as follows.
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ATO super problems to avoid
If an employer fails to meet its super guarantee obligations by the due date, it might have to pay a charge to the ATO, known as the superannuation guarantee charge (SG Charge).
- the super guarantee shortfall amounts calculated on each employee’s salary or wages (not just ordinary time earnings);
- an interest component (10%); and
- an administration component ($20 for each quarter and for each employee).
Unfortunately, an employer cannot merely make super guarantee payments to the employee’s choice of fund that would have otherwise been made to satisfy the liability. The larger SG Charge becomes payable as a liability due to the ATO. (However, offsets are available in certain circumstances where an employer has made the payment to the employee’s choice of fund rather than the ATO.)
Therefore, in order to avoid an expensive post-Christmas surprise, it is important that you are on top of your super guarantee obligations with respect to all additional payments made to your employees.