It may not always grab headlines like wages underpayment scandals, but failing to pay the correct superannuation is one of the most common and costly compliance issues in Australian payroll. Whether it's misclassifying contractors or miscalculating ordinary time earnings (OTE), these errors can have significant financial, legal and reputational consequences.
Superannuation must be calculated on OTE, not total earnings
The Superannuation Guarantee (SG) requires employers to pay a percentage of an employee's OTE to their nominated super fund. It sounds straightforward, but confusion often arises over what constitutes OTE. For example, regular bonuses, commissions and allowances may or may not be OTE depending on their nature.
Where payroll systems are not properly configured or payroll professionals lack the necessary understanding of superannuation legislation, underpayments can easily occur. These are not just bookkeeping oversights, they're breaches of superannuation law that can attract penalties from the ATO and the Fair Work Ombudsman.
Contractors may be entitled to super, even if they invoice you
One of the most misunderstood areas in payroll is superannuation obligations for contractors. Many businesses assume that if someone has an ABN and issues an invoice, there is no super obligation. This is not always true.
Under the Superannuation Guarantee (Administration) Act 1992, a contractor may still be deemed an employee for super purposes if they are paid mainly for their labour. This includes individuals who are:
Paid for their personal effort or skills,
Paid by the hour or by task (not to achieve a result), and
Not delegating the work to others.
In other words, if a contractor is operating as a one-person business and is effectively working like an employee, they may be entitled to superannuation. Failing to identify and pay super to eligible contractors is a common and expensive mistake.
The consequences of getting it wrong
The costs of superannuation non-compliance are not limited to back-payments. They include:
Super Guarantee Charge (SGC): This includes the unpaid super, interest and an administration fee. It is not tax-deductible and must be lodged with the ATO.
Penalties: The ATO can impose penalties of up to 200% of the SGC, especially if they deem that the employer did not make a genuine effort to comply.
Multiple breaches: If multiple employees or contractors are affected, fines can be multiplied, just as with underpayment of wages.
Reputational damage: If compliance issues become public, particularly if highlighted in the press or social media, the brand and employer reputation can be seriously harmed.
Increased audit risk: A breach in super compliance may trigger broader audits from other agencies including payroll tax or workers compensation authorities.
Payroll's professional responsibility
As payroll professionals, we are on the frontline of compliance. Ensuring super is paid correctly on all eligible OTE, and to contractors where required, is not optional. It is fundamental to our role as guardians of employee entitlements and protectors of the organisation's legal standing.
The good news? With the right training, documentation and technology, these mistakes can be avoided. Scenario based training should include examples involving superannuation on bonuses, overtime and contractor engagements. And payroll systems must be regularly audited to ensure they reflect the latest interpretation of legislation.
As Tracy Angwin often reminds us, "Compliance is not just a payroll issue, it is a business risk issue." And when it comes to superannuation, ignorance is never a defence.
