Do you understand how superannuation payments are calculated? Reading this could save your business thousands…
Superannuation is complicated and it’s not surprising that businesses can get it “super wrong”. Your business could be paying too much super, or too little. Read on to find out more…
- Overpaying employees because they do not realise that “ordinary times earnings” may not mean all hours worked; and
- Failing to pay superannuation for those contractors that must be paid super… and only realising the error when audited by the ATO
Many businesses make the mistake of calculating and paying super on all wages.
OTE is defined in section 6 of the Superannuation Guarantee (Administration) Act 1992 but its meaning needs some unpacking.
Many wages employees are covered by an Award that states that a full time employee’s work conditions are 38 ordinary hours and that any additional hours
are overtime hours.
However, overtime hours are OTE if an agreement “removes the distinction between ordinary hours and other hours”. The two clearest examples are:
- Salary that is paid for all hours worked; and
- Where an employment agreement for a wages employee that requires additional (overtime) hours but omits stating the number of ordinary hours per week.
- Be aware that converting a wages employee to salary can have adverse implications for the amount of additional superannuation to be paid.
- For wages employees check your employment contracts to ensure they retain the distinction between ordinary and overtime hours. If they do, check that
you’re not incorrectly paying super for overtime hours. If they don’t, consider contacting us to amend your employment contract!
- A few Awards provide for a 35 ordinary hour week (not 38). Ensure you know what Awards cover your employees and how many ordinary hours apply.
Super for independent contractors
In fact, your business must pay super to independent contractors that are “deemed employees” under superannuation legislation.
The ATO regards a contractor as a “deemed employee” where the contractor:
- is remunerated (either wholly or principally) for their personal labour and skills)
- performs the contractual work personally (there is no right of delegation); and
- is not paid to achieve a result.
For example, your tiling business engages Joe Mackay (trading as Joe’s Tiles ABN 123 456 789) as a subbie to lay tiles at an hourly rate. Your business
provides the tiles. There is no signed contractor agreement.
If your business failed to pay super and is audited by the ATO then it may receive a demand for unpaid super. We have seen this issue a number of times.
- Super may be payable if your business engages individuals as contractors.
- Whether super is payable may depend on the terms of your contractor agreement as well as what work is done.
- If the business does not have well worded contractor agreement, then in many cases there may be no basis to defend an ATO demand for unpaid super.
We have helped many businesses in the construction industry to avoid “super pitfalls” and reduce their risk, by advising about the superannuation rules
and preparing or amending their subcontractor agreements.