Employee super – don’t pay late, not even one day!

There is no wriggle room in legislation for late payments of employee super contributions – not even one day’s grace. By TERRY HAYES of Thomson Legal & Regulatory

By Terry Hayes, of Thomson Legal and Regulatory

Superannuation is white-hot at the moment, but there are issues surrounding super that are ongoing and not caught up in the current “hype”. They are nonetheless important for small businesses to be aware of.

One concerns the requirement under the law for businesses to send to the tax office each quarter the 9% superannuation deducted for their employees. These superannuation payments are due to be made to the tax office within 28 days of the end of each quarter and the law does not allow any extension of that date.

No big deal you say — pretty mechanical, no problems. Well, it should be, but not every business runs as smoothly as it should. And there is a potentially large dollar sting in this super tale.

Take a recent case before the Administrative Appeals Tribunal (AAT) where a motorcycle dealer was fined for paying its superannuation deducted for employees to the tax office one day late!

You see, the law gives the tax office no leeway at all if a business pays its employees’ super late. One day late is enough to incur a penalty or tax known as the Superannuation Guarantee Charge (which is equal to the super not paid on time) — and it is not tax-deductible, so it amounts to a double-hit for the business.

Even worse, the employer has to pay the penalty on top of paying the employees’ super it should have paid, effectively meaning it pays the super twice!

In the AAT case, the company ran into financial difficulties and made late payment to the tax office of certain superannuation contributions on behalf of some of its employees. The tax office therefore imposed the Superannuation Guarantee Charge, plus interest for late payment and an administrative component.

The motorcycle business ran into cash flow problems and was subsequently sold. It was from the proceeds of that sale that the superannuation payments to the tax office were made, albeit several months late.

In respect of one payment, the company delivered a cheque to a person it believed was an agent for the super fund on the last day that it was due. However, the super fund recorded that cheque as being received the following day; that is, one day late.

So if the superannuation was paid anyway, but just a little late, why should there be a problem you ask?

Well, the law makes no provision for late payment. None. The tax commissioner has no discretion to remit or waive any or all of the Superannuation Guarantee Charge itself, nor the nominal interest or administration component that might be levied.

The legislation was designed to protect employees by ensuring they received superannuation support from their employers, and was tightly drafted in that regard. But it does produce harsh results.

In the above case, the AAT said: “The legislative inflexibility in circumstances where the employer is in a difficult financial position, as in the present case, results in the employer being unduly penalised for a relatively minor infringement.”

That is, the super was paid, but paid late. The employees had their super credited to their accounts with the super fund, but the employer was faced with what amounted to a large penalty.

The moral of the story is simple: be organised, and be on time in making super payments for employees. There’s no margin for paying late. And the financial penalty is far worse than simply giving the tax office a “heads-up”.

If your business looks likely to have a problem paying on time, don’t hesitate — get in touch with the tax office before the due date. That way, there is a chance to avoid a nasty non-tax deductible hole in the business bank account.