An employer is subject to the SG charge if it does not make the minimum required amount of SG contributions on behalf of their eligible employees in respect of a quarter.
From 1 July 2021, the minimum SG contributions payable in relation to an employee is 10 per cent of the employee’s ‘ordinary time earnings base’ for the quarter. The ordinary time earnings (OTE) base for a quarter comprises the employee’s OTE and the amount of OTE which is salary sacrificed into superannuation for the quarter.
The SG contributions are due by the 28th day after the end of each quarter (i.e. 28 January, 28 April, 28 July and 28 October).
To the extent that the employer does not pay the required SG contributions on time, the employer is subject to SG charge for the quarter, which is the sum of:
- the total of the individual SG shortfalls in respect of each employee for the quarter — broadly this is equal to the employee’s ‘salary and wages base’ × 10 per cent, reduced by the amount of SG contributions which were paid on time
- any choice shortfall for the quarter
- the nominal interest component for the quarter (interest rate of 10 per cent)
- the administration component for the quarter ($20 per employee for whom there is an individual SG shortfall).
An individual SG shortfall for an employee for a quarter is their ‘salary and wages base’ × 10%. An employee’s ‘salary and wages base’ for a quarter comprises their salary and wages and the amount of salary and wages which is salary sacrificed into superannuation for the quarter.
The employer is required to pay the SG charge and lodge an SG charge statement by the due date for each quarter, which is the 28th day of the second month after the end of the quarter (i.e. 28 February, 28 May, 28 August and 28 November).
In certain circumstances, the employer may choose to treat a late payment of SG contributions as follows:
- as a late payment offset (LPO) against the SG charge; or
- as a prepayment of a future SG liability — within 12 months and for the same employee(s).
- If the SG charge remains unpaid after its due date, general interest charge is payable on the shortfall amount.
The Part 7 penalty — additional SG charge
On 25 November 2021, the ATO finalised PS LA 2021/3, the ATO’s practice statement on the remission of the additional 200% Superannuation Guarantee Charge (SGC) imposed under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SGAA).
The finalised PS LA 2021/3 includes a greater emphasis on employer proactivity, and effective controls and processes. In particular, the finalised PS LA places a significant emphasis on an employer’s SG compliance history in dictating an increase or decrease in remission, with a clear mandate on preventing repeat errors and implementing governance that mitigates such occurrences.
Further, the PS LA is also emphatic on the legislative limitations regarding remitting the penalty, in instances where an employer doesn’t voluntarily disclose shortfalls prior to ATO compliance action, particularly for periods that were covered during the SG Amnesty, except for “exceptional circumstances”.
The PS LA also singles out utility of Single Touch Payroll (STP) data, which when coupled with reporting of contributions from superannuation funds, will provide “end-to-end visibility” and enable the ATO to “engage with employers” who do “not come forward voluntarily”.
With the advent of STP 2 reporting, which will enable more granular and accurate reconstruction of employers’ Superannuation Guarantee obligations, employers should be particularly proactive with ensuring compliance. This is both with respect to payroll system setup and associated reporting against STP 2 guidelines, but also in terms of ongoing testing and monitoring to ensure that, where inadvertent errors arise, remedial measures are taken in a timely manner and, importantly, before ATO compliance action.