SMEs set to benefit from rewriting of super contribution rules

Small businesses owners will have the option of assessing their employee superannuation contributions on a quarterly basis, if the federal government adopts recommendations to change the superannuation guarantee, outlined in a Board of Taxation report released this week.

Australian employers are currently required to pay super contributions for workers that earn more than $450 a month.

But the Board of Taxation, which was asked by the government to find ways to help ease the tax impediments and red tape burden on SMEs, has recommended a quarterly threshold of $1350 be introduced as well.

SMEs would have the option of continuing to assess their super contributions on a monthly basis, and while the actual income level would not change, the board said allowing employers to assess their super costs on a quarterly basis would reduce red tape.

“Small businesses, in particular those industries employing a larger number of seasonal workers, have complained about having to pay superannuation contributions for a large number of workers,” the board said.

The board said the change “may exclude some low income earners from superannuation coverage” but said it will “reduce compliance costs for small businesses, particularly for those with a large number of short-term casual employees”.

The threshold governing employer super contributions has not been changed since the superannuation guarantee was introduced in 1992.

The board has also recommended rewriting the rules governing the superannuation guarantee charge to ensure employers that inadvertently short change their employees’ super or are late in making a payment can avoid “unnecessarily harsh” penalties, that often result in “disproportionate outcomes” for employers.

Releasing the report yesterday, Small Business Minister Bruce Billson and Assistant Treasurer Josh Frydenberg accepted the recommendation and said changes to the penalty regime will come into effect on July 1, 2016.

“The report noted that superannuation penalties can be harsh, with disproportionate outcomes,” the ministers said.

“The government will ensure that penalties for employers who inadvertently pay their superannuation guarantee late or short pay their employees’ contributions by a small amount reflect the nature of the breach.”

Billson and Frydenberg said the board’s recommendations will also be considered as part of the government’s “broader consideration on small business taxation” ahead of the release of its tax white paper.

Peter Strong, executive director of the Council of Small Business of Australia, welcomed the recommendations, telling SmartCompany he “absolutely” supports giving employers a choice in how they assess their super contributions.

While Strong says there are “swings and roundabouts” when it comes to comparing the virtues of assessing super requirements on a monthly or quarterly basis, he says anything that reduces compliance costs for SMEs is worthwhile.

“It’s flexible and it gives employers options,” he says.

Strong is also in favour of reforming the penalties imposed on small business owners who inadvertently make a mistake with their super contributions.

“What we’re hearing from Billson and Frydenberg is common sense and I hope they get total support from their colleagues in cabinet,” he says.

However, the Association of Superannuation Funds of Australia has concerns about the proposals, with a spokesperson telling SmartCompany the association has long advocated for the complete removal of a threshold for employee super contributions. 

“There are an increasing number of people in the workforce who work casual or part-time, and often in multiple jobs,” the spokesperson says. “In some cases, people work for a number of employers but only for a day a week, meaning that while they may be earning more than $450 a month in total, they do not receive any superannuation as they do not reach this threshold with a single employer.”

“The existence of the $450-per-month threshold for the payment of superannuation guarantee therefore penalises low-income earners, those who are permanent part-time workers and those with multiple jobs, who receive little or nothing in the way of superannuation guarantee contributions.”

The association also believes the Australian Tax Office resources should be better targeted at ensuring employees receive their rightful superannuation entitlements, instead of modifying the existing penalty regimes for payment errors. 

“The non-payment of super by employers affects around 650,000 Australian workers, leaving them collectively out of pocket almost $2.5 billion annually,” the spokesperson says. “The priority should be on reducing the amount of this non-payment.”