The superannuation guarantee (SG) is one of those unavoidable facts of life: if you have employees, you are required to pay it, no matter what. If you don't, there are serious penalties. 

Currently, the ATO checks that employers are meeting all SG requirements when undertaking PAYG compliance reviews. Additionally, a thorough investigation will be launched if the ATO receives a complaint from an employee that they have not received their full SG entitlements. 

Some small business owners fail to pay the SG as when it falls due, they do not have the cash flow to finance the contribution. Another difficulty is defining what is an 'employee'. Whilst the employer may believe they have an independent contractor on board, the ATO may categorise the contractor as an employee. So, exactly what are the consequences for employers who fail in their SG obligations? Following is a brief outline of what you can expect. 

THE SUPERANNUATION GUARANTEE CHARGE (SGC) 

If the minimum amount of SG for your employee has not been paid into the correct fund by the due date, you may have to pay the SGC. It's made up of 3 components: 

·         The SG shortfall amounts which are calculated on your employee's salary or wages. If you have also failed to offer a choice of super fund, paid their contribution into a fund not of their choice or charged your employee a fee for doing so, then a "choice   liability" penalty may also be added into the equation. 

·         Interest on those amounts. This is currently 10%. 

·         Administration fees. Currently $20 per employee and paid per quarter. 

DIRECTOR PENALTIES 

The director of a company that fails to meet an SGC liability in full by the due date automatically becomes personally liable for a penalty equal to the unpaid amount. Even if you're a no longer a director of a company, or you're newly appointed, these penalties may still apply. Clearly, the objective here is to ensure that directors cause the company to comply with their tax and super obligations; that they ensure prompt and appropriate action is taken to remedy any shortfall in employee entitlements being met. 

OTHER PENALTIES 

A range of other penalties may also be applied to businesses whose commitment to meeting their SG obligations are less than ideal. These can include: 

·         General interest charge (GIC)   This applies to late payment of SGC. It begins to accrue from the date the SGC was due, right up to the date it's paid in full and it's calculated on a daily compounding basis. 

·         Administrative penalty   False or misleading statements which prompt you to pay less SGC than you should have will trigger this further penalty, which can be up to 75% of the shortfall. 

·         Failing to keep records Individuals guilty of this offence can be hit with a maximum 30 penalty units and may even incur a further administrative penalty of an additional 20 penalty units. 

·          Failing to provide an SGC statement when required Late statement lodgement, no statement, or information not provided when requested during an audit, will incur a maximum penalty of 200% of the charge payable. 

·         Failing to pass on a tax file number (TFN) to a super fund  Ten penalty points apply here. 

If you enter into arrangements designed to avoid certain obligations such as your liability for the SGC, you may incur the charge you avoided plus an additional penalty based on the circumstances. 

The ATO has made it clear that it is stepping up its campaign to clamp down on non-compliance with SG obligations, including a 100% investigation rate if even one employee makes a complaint. But it's unlikely to stop there; further investigations into other aspects of the business will almost inevitably follow. And, with no reimbursement offered by the ATO for lost time and money during an investigation, the costs of non-compliance can be very high indeed. 

For professional and up to the minute advice on how best to meet your business obligations in this area, contact the KDA Group on 02 4861 8383 and speak to one of our consultants.