(July-2003) Adjusting to the new SG rules

Quarterly Super Guarantee contributions — tell your employees or else!

Until now, many employers have been following the minimum practice allowed under the Superannuation Guarantee (SG) law, that is, making a single superannuation contribution each year for each eligible employee, and paying the contribution on or just before July 28 of the next income year.

This month all of that changes. From now on, every employer who is liable to make SG contributions on behalf of employees must do so at least every three months, not once a year. Contributions must be made within 28 days after the end of each quarter, in order to avoid the imposition of the SG charge. This means that the deadlines are October 28, January 28, April 28 and July 28 each year. This, of course, is a minimum requirement — an employer is always free to make more frequent contributions, for example, in conjunction with monthly wage and salary payments. The rate of contribution remains the same as before, that is, nine per cent of the employee’s notional earning base for the quarter.

If an employer fails to make a contribution for a quarter, or makes inadequate contributions, and has an SG shortfall as a result, the employer will have to lodge an SG statement with the Tax Office. The deadline for lodging the statement is, effectively, six weeks after the end of the relevant quarter, that is May 14 , August 14, November 14 or February 14 as the case may be.

Reporting to employees

One very important new requirement is the obligation to provide a personalised written report to the employee as each contribution is made. The employer must report to the employee within 30 days after having made the contribution.

There is a trap here for employers who follow Tax Office guidelines. As revealed by Chris Ketsakidis and Andrew O’Bryan in the May 2003 issue of their Superannuation Tax & Planning Adviser (TAXability), the Tax Office is wrong on this point. In a fact sheet entitled Quarterly Superannuation Guarantee — information for employers, the Tax Office says: “You must report within 30 days of the final contribution being made for the quarter. For example, if you made your last contribution on September 30, the report will be due by October 30, or, if your last contribution is made on October 28, the report will be due November 27.” The legislation, however, makes it clear that a written report must be made in respect of each contribution that an employer makes which reduces the rate of the employer’s charge percentage. So, if an employer makes monthly contributions, within the SG system, it must also report monthly to the employees on whose behalf the contributions are made.

What must be reported? The minimum information consists of the amount of the contribution, the name of the fund or RSA provider to which the contribution has been made, and if known to the employer, the employee’s fund membership number or RSA account number. It is also a good, if elementary, precaution to include the superannuation provider’s name and telephone number, to enable the employee to check that the contribution has in fact been made.

There is no prescribed form for the report. It could, for example, consist of a letter or an e-mail message from the employer, or notification on payslips. It would be helpful to include a copy of the receipt from the superannuation provider, if there is one.

It’s a crime

Clearly, the Government takes this obligation to report to employees very seriously. Just how seriously is shown by the fact that an employer who has made an SG contribution on behalf of an employee, but either fails to give the necessary written report or gives a report which it knows is false or misleading in a material particular, commits a criminal offence.

Under the SG law, if an employer fails to provide the necessary report, it can be fined up to $3,300 (if the employer is a natural person) or up to $16,500 (if a corporation) in respect of each employee who is due a report but fails to receive one.

Under the Criminal Code, if an employer gives a report to an employee, knowing it to be false or misleading in a material particular, the employer commits an offence and can be liable for a jail term of up to 12 months (if a person) or a fine of up to $6,600 (if a corporation), again in respect of each employee who receives a false or misleading report.

These offence provisions come into play where an employer has actually made a contribution, but has failed to report the contribution to the employee as required, or has made a false or misleading report. Of course, if an employer fails to make the contribution itself, or fails to make it on time, the standard sanction of the SG charge will take effect. By way of easing employers into the new quarterly system, however, the interest component of the charge will not be imposed on shortfalls arising from the first two quarters of the 2003/04 income year.

It is obvious from all this that employers, especially those who make contributions on behalf of numerous employees, will have to be very careful to make sure they have adequate and foolproof systems to ensure that reports to employees are both accurate and on time. And employers should be under no illusions that inadequate or slipshod practices in this respect will go undetected. Employees are broadly aware of their superannuation entitlements these days, and have a considerable incentive to ensure that those entitlements are being paid.

— Brian Egan is a freelance commentator on superannuation, tax and corporations law matters, and a principal of Sirius Information Services.