Amid the hype around the big changes to super that came into force on 1 July, a change to the base on which employers pay the super guarantee levy that could cost employers thousands of dollars has gone largely unnoticed.
From 1 July 2008, employers have to pay the super guarantee levy on employees’ “ordinary time earnings”, according to an amendment passed in 2004 by the Federal Government.
Under existing rules, employees’ earnings for superannuation purposes may be calculated on a number of different earnings bases, and many will be lower than the earnings calculated under ordinary time earnings.
So for many companies the change to calculation on ordinary time earnings could increase the amount of the levy.
“In some industries it could be significant,” says Vicki Macdermid, superannuation partner, Pitcher Partners. “The mining industry tended to use quite low earnings bases, so they could find super costs increase [by] up to 60%.
“It is more likely to affect people on state-based awards,” she says.
Employers will be faced with either absorbing the extra amount or asking employees to take a cut to their take home pay. Try doing that during a skills shortage.
Macdermid says employers should be preparing now by reviewing how the change will affect them. Depending on their contracts with employees, they will be locked into bearing the cost, but others will have the option to pass on the cost to employees.
She says: “You may have a contract that refers to a total package, so you have the option to pay more super and less cost… To an employee that is a pay cut. Most employers wouldn’t go down that path; most will absorb the cost.”
The penalties for underpaying the super guarantee levy are severe. Employers must pay the contribution shortfall, interest and an administration penalty to the tax office or expose themselves to penalties of up to 200%.
Two weeks ago, when tax commissioner Michael D’Ascenzo announced who will be in the tax office’s sights in 2007-08. He said the tax office will be using the extra $125.7 million (over four years) it received in the May budget to chase micro businesses, with turnover under $2 million, for among other things unpaid superannuation guarantee levies.
He also announced more audits of micro businesses to ensure employers meet their obligations to pay PAYG, super and fringe benefits tax.