The Superannuation Guarantee Charge (“SGC”)

The Superannuation Guarantee Charge (“SGC”)

The Australian retirement income system is based on three pillars – the aged pension, superannuation and private savings. This article focuses on the second of those pillars – superannuation, and in particular the employer’s obligations with respect to superannuation.

Superannuation has been a key feature of employment in many industries in Australia since the mid-1800s, at first focusing on employees in public service and the financial sector. Since then, many governments tried to expand the super savings scheme into other sectors of the economy via a mandatory contribution scheme. However, it wasn’t until 1992 that the then Prime Minister Paul Keating introduced legislation that would mandate employers to contribute a portion of the employee’s salary into superannuation with a view to assist Australian workers to save for a comfortable retirement.

Currently, employers are required to contribute 10% of an employee’s earnings into their superannuation fund. This is the known as the superannuation guarantee (SG). This rate is legislated to rise in half per cent increments each year until it reaches 12% of wages in 2025. From 1 July 2022, the SG rate will be 10.50%. Raising the SG rate to 12% is hoped to achieve three things: It will result in better retirement outcomes for women and low-income earners; 50% of Australians will be living comfortably in retirement in 2050, double the current proportion; and there will be a significant reduction in future expenditure of the aged pension. If all three are achieved, it would raise the living standards of Australians.

Employers are required to pay the SG into their employees’ nominated superannuation fund at least on a quarterly basis (that is, every three months). This payment is required to be made within 28 days after the end of a quarter. The following table outlines the due dates for payments:

Employers can also make payments more frequently than quarterly, for example fortnightly or monthly. If they choose to pay more frequently, then they must ensure that their total SG contribution for the quarter is paid by the due date.

If an employer misses or does not pay the SG on time or to the right fund, they must lodge a superannuation guarantee charge (SGC) statement and pay the SGC. This amount is more than the superannuation that would normally be paid to the employee’s fund and is not tax deductible. The due date for payment of the SGC and lodging the statement is one calendar month after the super guarantee due date.

The superannuation guarantee charge is made up of:

1. The super guarantee shortfall, made up of:
   1. – super calculated on salary and wages (including any overtime)
   2. – any choice liability, based on the shortfall and capped at $500
2. Nominal interest of 10% per annum (accrues from the start of the relevant quarter)
3. An administration fee of $20 per employee, per quarter.

The super guarantee shortfall is calculated using salary and wages and multiplying this by the current super guarantee rate.

Nominal interest is calculated from the first day of the quarter that the super guarantee was not paid up to but not including the ‘lodgement day’.

The ‘lodgement day’ is the later of either:

• the 28th day of the second month following the end of the relevant quarter
• the day you lodge the Superannuation guarantee charge statement.

Super guarantee shortfall divided by the number of days in the year × number of days from the start of the quarter (up to but not including the lodgement day × 10%.

The super guarantee charge is paid to the Australian Taxation Office. It is then distributed to the employees’ complying super funds, less the administration fee.

If you have realised that you have any superannuation that has not been paid on time, please contact us for assistance so that we can work with you to resolve. The extra cost of late payment can be significant, particularly when considering that this payment is not tax deductible to the employer.

By Damir Turkanovic – Senior Accountant – Venture Private Advisory