On 14th March the draft legislation for the pay day super reforms was released. A summary of some of the key components of the legislation can be found below.
With a federal election now called for the 5th May, the government is in caretaker mode. This means that consultation is paused until after the election. However, interested parties still have until Friday 11th April to file submissions in response to the draft legislation. You can find the draft legislation, supporting documents, and details on how to file a submission here.
Summary of Key Payday super provisions
QUALIFYING EARNINGS - new terminology has been introduced, called Qualifying Earnings (QE). QE are the earnings on which employers are required to make an SG contribution. Note that this has not changed the amount of super that is required to be paid, the definition of Ordinary Time Earnings (OTE) will remain the same.
- The employees OTE
- Commissions
- Directors Fees
- Contractor payments
QUALIFYING EARNINGS DAY (QE Day) = Pay day
Payday is defined as the date an employer makes a payment of qualifying earnings to an employee
KEY POINTS
- Employers will be required to make SG contributions on a "QE Day"
- The due date to the super fund will be 7 calendar days after the QE Day
- Additional time for new employees - 21 days from QE Day
MAXIMUM SUPER CONTRIBUTION BASE (MSCB)
The MSCB will be changed from a quarterly base to an annual base. The formula for the MSCB will be:
Concessional Contribution Cap x (100 / SG percentage)
Therefore, if the concessional contribution cap was $30,000, and the SG percentage was 12%, then:
$30,000 x (100 / 12) = $250,000 MSCB per annum. Super would not be required to be paid on excess earnings once an employee has earned $250,000 with that employer.
OVERPAYMENTS
- Any surplus of SG paid for a QE Day will be automatically 'carried forward' to the next QE Day
- Contributions may be carried forward for up to 12 months after the day they are made
EXTENSIONS
- Out-of-Cycle payments – For example, commissions, bonuses, back payments. An extension can be provided to make the payment on the next QE Day
- Exceptional Circumstances - For example, natural disasters, or widespread ICT or communications outages. The ATO may extend by 21 days. Note that this will only apply for circumstances that affect groups of employers and will not apply on an individual employer basis for their own internal IT issues
- Stapled Super bounce backs - if the stapled super fund does not accept the contribution (i.e. the super bounces back), the employer will have 42 days from the QE Day to make a replacement eligible contribution. Note that this only applies for stapled super bounce backs, and will not apply for bounce backs that occur due to an employee closing their fund and failing to notify the employer
SG CHARGE
- All assessments for the new SG Charge will be made by the ATO and would be triggered by:
- employer voluntary disclosure to the ATO
- employee notification of unpaid super
- ATO pro-active compliance via data-matching between STP data and super fund reporting
- Employers will be required to report both the OTE and the total superannuation liability for an employee through STP Reporting. This may require some payroll solutions to upgrade their functionality
- The SG Charge will now be tax-deductible, though any additional penalties or interest after the assessment will not be
COMPONENTS OF THE SG CHARGE
- The total shortfall for the QE Day - The shortfall will be calculated on the employees qualifying earnings.
- Notional Earnings (interest) – The shortfall will incur daily interest at the general interest charge rate. Interest will accrue from the day after the 7-day due date
- Administrative Uplift – The $20 admin fee per employee will be replaced with an additional charge of up to 60% of the shortfall, to cover the cost of enforcement. This will be reduced when an employer takes action to voluntarily disclose and address unpaid super quickly, or has not had any ATO initiated assessments within the last 24 months. The reduction could potentially be reduced to 0% if particular conditions are met
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