Superannuation compliance remains one of the most significant payroll obligations for Australian employers. Yet, despite its importance, superannuation underpayments continue to be a common issue-often resulting in penalties, back payments, and reputational damage.
With the Australian Taxation Office (ATO) increasing its scrutiny on superannuation payments and further super guarantee (SG) rate increases on the horizon, employers cannot afford to get it wrong. Preventing underpayments before they happen is always the best approach, ensuring compliance while protecting employees' entitlements.
In this article, we'll explore why superannuation errors occur, how to prevent them, and what businesses should do to stay ahead of upcoming changes.
Why do superannuation underpayments happen?
Superannuation underpayments can arise from a range of issues, many of which stem from misunderstandings or incorrect payroll processes. Some common causes include:
- Incorrect calculation of ordinary time earnings (OTE) - The superannuation guarantee is generally calculated on OTE, but confusion about what qualifies as OTE can lead to underpayments. For example, some allowances and bonuses may need to be included, while overtime payments typically do not.
- Failure to update payroll systems for rate changes - With the superannuation guarantee rate increasing in stages, businesses that fail to update their payroll systems risk continuing to calculate super at outdated rates.
- Missed payments for contractors - Many businesses incorrectly assume that superannuation is only payable to employees. However, under the 'deemed employee' rules, some contractors must also receive super contributions.
- Late or missed payments - Superannuation must be paid at least quarterly by the due dates set by the ATO. Late payments not only attract penalties but also mean the employer loses the ability to claim a tax deduction for those contributions.
- Payroll system errors - Incorrect system settings, data entry mistakes, or software integration issues can all lead to underpayments if not regularly checked.
Best practices for superannuation compliance
To prevent superannuation underpayments before they happen, businesses should implement strong payroll governance measures. Here are some key strategies:
1. Regularly audit superannuation calculations
Conduct routine payroll audits to check that superannuation is being calculated correctly on all eligible earnings. Compare system calculations against ATO guidelines to ensure accuracy.
2. Update payroll systems for rate changes
Ensure payroll software is configured to apply the correct super guarantee rate each financial year. Employers should work with their payroll provider or software vendor to confirm updates are applied in advance of rate increases.
3. Review contractor arrangements
Assess whether contractors meet the definition of a 'deemed employee' for superannuation purposes. If they do, ensure superannuation contributions are being paid correctly.
4. Pay super on time, every time
Super contributions must be paid by the quarterly deadlines (28 January, 28 April, 28 July, and 28 October). Consider making payments more frequently-such as monthly-to reduce the risk of missing a deadline.
5. Check payroll configurations after enterprise agreement or award changes
If your business operates under an enterprise agreement or modern award, check whether superannuation entitlements exceed the legislated minimum and adjust payroll settings accordingly.
6. Educate payroll teams and HR
Superannuation compliance requires payroll and HR professionals to stay informed on changing regulations. Regular training ensures teams understand super obligations and how to apply them correctly.
7. Monitor ATO compliance initiatives
The ATO is increasingly using data-matching technology to identify underpayments. Employers should proactively review their compliance before they receive a compliance notice from the regulator.
Superannuation compliance is not just a payroll responsibility-it's a critical employer obligation. Underpayments can lead to financial penalties, increased scrutiny from the ATO, and damage to an employer's reputation.
By regularly auditing payroll systems, keeping up with legislative changes, and ensuring payments are made on time, businesses can prevent costly mistakes before they occur. With further superannuation rate increases approaching, now is the time to review payroll processes and ensure compliance.
Taking a proactive approach to superannuation compliance doesn't just protect your business from risk-it ensures employees receive their full entitlements, strengthening trust and confidence in payroll operations.
