Superannuation is something that we all need, something that us employers are responsible for, but when you are employing staff for the first time it can be quite confusing. Today we look at setting up superannuation for your staff before you employ them.
Superannuation is money you pay for your workers to provide for their retirement. It is a payment on top of their wages.
If your employees gross wage (wage before tax is taken out) is more than $450 a calendar month then you are required to pay superannuation for them.
The minimum you must pay is called Super Guarantee (SG). Currently SG is 9.5% of your employee’s ordinary time earnings. SG must be paid at least quarterly and be paid into complying super funds.
If for some reason you don’t pay the SG on time, you may have to pay a Superannuation Guarantee Charge.
Do you have to pay Superannuation?
As mentioned above, if your employees gross wage (wage before tax is taken out) is more than $450 a calendar month, you are required to pay Superannuation Guarantee (SG) on top of their wages.
If you employ staff who are under 18 years of age, or they are a private or domestic worker, such as a nanny, they need to also have worked more than 30 hours per week in that calendar month to qualify for you to pay SG.
A Domestic Worker is someone you employ personally (not through a business) to undertake domestic or private work relating to your home, household affairs or family – such as a nanny, housekeeper or carer.
Superannuation is also payable for some contractors, even if they quote an Australian Business Number (ABN), so make sure you look into this in detail before having contractors.
SG does not have to be paid for:
- Non-resident employees you pay for work they do outside Australia
- Some foreign executives who hold certain visas or entry permits
- Employees paid under the Community Development Employment Program
- Members of the army, navel or air force reserve for work carried out in the role
- Employees temporarily working in Australia who are covered by a bilateral super agreement
Setting up Superannuation
In Australia all staff are given the choice to elect what fund their superannuation is paid into, but before you can give them this choice you, as the employer need to have a fund you will pay their super into if they can’t or don’t choose their own fund. This is call a Default Superannuation Fund.
The superannuation fund that you nominate must:
- Be a complying fund (that is, one that meets specific requirements and obligations under superannuation law)
- Be registered by the Australian Prudential Regulation Authority (APRA) to offer a My Super product.
If you are unsure what fund you should choose, the best thing to do is look in your award and see what fund they list as the default one.
Once you have chosen what fund you are going to use as your default fund you then need to contact them and sign up as a Participating Employer. This makes it easier to pay into.
Just be aware that by signing up as a participating employer you may have to lodge the superannuation more frequently than quarterly.
Offering your employees a choice of fund
In most circumstances you will need to offer your staff the choice of superannuation fund that they want to use. This is done at the time of the commencement of their employment.
The easiest way to give them the choice is providing them with a Standard Choice Form. The Standard Choice form can be downloaded from the ATO’s website. In section B of the Standard Choice Form you provide your default superannuation funds details so that the employee is aware of it.
Existing eligible employees are entitled to change their choice of fund as often as they want to, but you have to accept a new choice from them only once in any 12-month period.
A copy of the Standard Choice form needs to be kept for five years. It does not have to be sent to the ATO at all.
Once they have supplied you with their choice of fund, you have two months to start paying contributions into that fund.
If they don’t choose a fund or haven’t provided you with the necessary information, you need to begin paying super contributions for them into your default superannuation fund.
Giving your employees information and advice
It is really important to understand that, unless you are licensed by the Australian Security & Investment Commission (ASIC) to provide financial advice, you must not make comments, recommendations or give advice to employees about the super fund they should use, the amount of superannuation they should pay and whether or not to consolidate their funds.
You are able to discuss with them why they need to chose a fund, the process of choosing the fund, what your obligations are and how they can nominate a super fund as their choice.
If they are wanting more information you can direct them to contact ASIC directly.
Providing employees TFNs to their funds
When your employees give you their tax file number (TFN), you must give it to their chosen superannuation fund when you lodge their next superannuation payment.
It is illegal to not pass on the tax file number to the superannuation fund. It is also your responsibility to make sure that anyone you engage to lodge the superannuation for you passes on the TFNs to the superannuation funds for you.
Salary Sacrificing Super
You can allow your employees to ‘sacrifice’ part of their salary or wages into a variety of benefits, including superannuation.
If an employee elects to salary-sacrifice into their superannuation, you the make the superannuation contributions to the fund on their behalf. You need to make sure that the arrangement complies with the rules of salary sacrificing.
The amount that is made under the salary-sacrifice arrangement may need to be reported on your employees payment summary, so make sure you confirm this as well.
The records that you keep must show:
- How much SG you paid for each employee and how was it calculated
- That you have offered each eligible employee a choice of superannuation fund
The records that you keep, must be:
- Written in English
- Be kept for 5 years
- If kept electronically, they must be kept on software that is accessible upon request.
Even if you use a clearing house to distribute super to your employees funds, you’re still responsible for keeping adequate records of SG payments.
The records you need to keep around the Choice-of-fund are:
- Evidence that you’ve given your employees the Standard Choice form
- Details of employees you don’t have to offer a choice of super fund to
- Confirmation that your default fund offers a MySuper product
- Receipts or other documents issued by the fund showing you’ve made superannuation contributions for that employee.
So that wraps up Superannuation and how to go about registering for it and preparing for SuperChoice.