“Administrative nightmare”: Labor bid to scrap superannuation threshold would hit small business

Employer groups and accounting experts say Labor’s plan to abolish the Superannuation Guarantee threshold will saddle small businesses with higher costs and administrative headaches.

Nestled in its wide ranging superannuation policy announcement last week, Labor committed to changing the rules so that employees that earn less than $450 per month from an employer will be entitled to compulsory superannuation contributions.

Currently, employers do not need to contribute superannuation to workers who are paid less than $450 monthly under the Superannuation Guarantee.

If elected, Labor would reduce the current threshold by $100 each year until it’s gone, adding more workers to the super contribution pool over the next four years.

Groups such as Women in Super and the Australian Institute of Superannuation Trustees have been pushing for the change, arguing that it would particularly benefit women who work as occasional casuals.

But Australian Industry Group chief executive Innes Willox has slammed the proposal, arguing the plan would add more cost to employers than it will add to the retirement incomes of women.

“If implemented, the removal of this long-standing threshold will add significantly to the direct costs of employment and to business compliance costs. In addition, the extra Superannuation Guarantee payments will give rise to higher payroll tax liabilities,” he said in a statement.

Willox said the threshold was put in place in 1992 to address compliance cost concerns, but because it is not indexed to inflation the threshold had already become less effective than it could be.

Accounting for superannuation threshold changes

Accounting experts SmartCompany spoke to said the changes will increase compliance costs for small businesses, with extra super payments creating additional payroll tax concerns for the industry.

Paul Drum, general manager of external affairs at CPA Australia, says the policy change could cause compliance issues for employers.

“Removing the threshold will create additional compliance issues for employers in both cost of compliance and their overall staff costs — after all, SGC is really deferred wages,” he told SmartCompany.

Tony Greco, general manager of technical policy and public affairs for the Institute of Public Accountants, said if the changes were made, they would “not go unnoticed” by small businesses.

“The implications are magnified because of payroll tax,” he tells SmartCompany.

“It is an administrative nightmare trying to work out if there’s a [super] obligation or whether there isn’t an obligation.”

There is concern that small businesses could be pushed over the payroll tax threshold by having to pay for the extra super contributions, which would see employers slapped with two additional sources of costs under the policy.

Greco said businesses that bring on more employees for busy periods, such as Christmas, could run into problems trying to account for the various super contributions they would have to provide for those employees, particularly if it pushed them above payroll tax thresholds.

“Non compliance in the small end of the spectrum is already quite common and this will only add more focus on employers which don’t do the right thing,” he explains.

With the introduction of Single Touch Payroll, scrutiny on small business owners over super contributions is already going to increase, Greco notes.

Greco says employers should be wary of potential policy changes and ensure their systems are updated to account for the implications of super threshold changes should Labor win government in 2019.

Mark Molesworth, a tax partner at accounting and professional services firm BDO, says for the businesses that would be affected by the change, there will be an additional $42-$43 cost per month cost each employee.

The current Superannuation Guarantee requires businesses to contribute at least 9.5% of employee earnings to their super accounts, but this figure is slated to rise to 12% by 2027.

Where these increases push businesses over their state’s payroll tax threshold, systems will need to be updated.

“A lot of superannuation calculations are done automatically by the superannuation system,” Molesworth tells SmartCompany.

“It will be really important that those systems are updated.”

Molesworth notes, however, that the change will only affect businesses with employees who are paid less than $450 per month.

Molesworth says businesses that go over the payroll tax threshold in a given month are required to pay the tax, but if they are found to be under the threshold on an annualised basis, the Australian Taxation Office will refund that money.

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