In detail
Following the 2023-24 Federal Budget, and the ATO’s 2023-24 Corporate Plan, we have seen a renewed focus on SG from both the regulator and government, both committing to adopting a more preventative and proactive data-led approach in dealing with SG compliance matters.
The overarching objectives of the ATO and the government are to address the structural drivers of underpaid SG and reduce the SG gap, estimated to be as high as $3.4 billion in 2019-20.
Closer alignment between super remittances and salary payments will provide the ATO with better visibility of SG entitlements, allowing it to identify (and pursue) instances of non-compliance. However, shifting the timing and frequency of payment to a payday model will require a fundamental overhaul to key features of the current SG framework.
A summary of the key challenges presented by a payday super regime are outlined below:
- Timing of the payment and definition of payday – Treasury has proposed two potential payday super models for consideration. An ‘employer payment’ model, which would impose the requirement on the employer to make payment of SG contributions on the day the salary and wages are paid, or a ‘due date’ model, which would require contributions to be received by superannuation funds within a certain number of days following ‘payday.’ In both cases, Treasury is seeking input on the definition of ‘payday’ and has proposed that payday is any time a payment is made to an employee that has an Ordinary Time Earnings (OTE) component.
- Application of the SG charge - The current SG charge is inherently punitive in its design to discourage employers from making SG payments late and compensating employees for missed SG contributions. Additionally, where an SG payment is made late, the base for calculation defaults to an employee's salary and wage base (rather than OTE), which includes payments that were never intended to be subject to superannuation, such as overtime.
The ATO acknowledges that the SG charge will need to be redesigned as part of payday super implementation, including consideration of: the nominal interest charge (i.e. whether the current rate of 10% per annum is still appropriate), the administrative fee, (i.e. how should the current rate of $20 per person per quarter be redesigned), whether late payments should continue to be non-deductible, whether employers will be permitted to continue to use late payment offsets and carry forward overpayments, and whether there should continue to be discretion available to the Commissioner to remit additional penalties.
- Rectification of underpayments (discrete errors) - There are several reasons why superannuation contributions may not reach an employee's fund by the due date that are outside of an employer's control. Examples include employees not providing SG fund details or employees changing their fund without advising their employer resulting in bounce backs. Consideration will be required as to whether there will be discretion afforded to employers for these discrete errors.
- Application of the quarterly Maximum Contribution Base (MCB) – where an employee earns more than the quarterly MCB, an employer is not required to contribute SG on the excess. The revised framework will need to consider whether the MCB is administered on a frequency that mirrors the pay cycle or whether a different period is used for all employees.
