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Business owners need to add super

ANY small business owner should be aware that one of the ‘on-costs’ they need to pay is a contribution towards their employees’ superannuation.

Under the Superannuation Guarantee (Administration) Act 1992 employers must pay a compulsory levy which contributes to the retirement income of their employee.

The size of the superannuation guarantee contribution levy varies depending on payroll but is a proportion of the gross income of the employee.

For many employers the levy is currently 6 per cent of the payroll rising to 9 per cent by the year 2002.

Payment of the levy is a legal responsibility of the employer and must be paid into a complying superannuation fund.

From the employee’s perspective, the money must be ‘preserved’ within the superannuation fund until they retire. Further, the employee is able to nominate the fund in which they wish to have their money placed.

For the employer, making these payments on a regular basis is critically important. There have been several cases of employers failing to do so and facing severe penalties.

All SGC payments must be paid into a complying fund by the end of each financial year or pay a levy to the Australian Taxation Office (ATO).

For example, SGC for income earned in the financial year 1998/99 must be paid by 14 August 1999.

The ATO is responsible for policing the SGC levy. An audit by the ATO found that while 91 per cent of employers were complying, errors continued to be made. For example only 86 per cent of female part-time employees were being correctly paid.

Under the legislation SGC must be paid for all employees unless they earn less than $450 in a calendar month, are over seventy or under eighteen years of age, employed in domestic work, work overseas or have special visa status. Members of the Army Reserve are also exempt.

For employers who use many casual staff, compliance with the SGC can be a major headache.

Not only do you need to monitor the employee’s hours and income to ensure that they get their SGC, but you need to make arrangements with industry or private superannuation funds to open an account in the employee’s name.

Highly mobile workers and sub-contractors pose a particular problem.

In the recent case of Vabu Pty Ltd v Commissioner of Taxation the NSW Court of Appeal held that an employer was not liable to pay SGC for their couriers.

Although the ATO argued that there was an employer-employee relationship in existence the court disagreed. It took into consideration that while the courier company had considerable control over its sub-contract couriers – even down to uniforms – the couriers were responsible for the expense of their vehicles and related equipment. Further, these courier sub-contractors operated under business or company names.

This judgement highlights the need for employers to carefully examine the nature of their employee and sub-contractor contracts. While the court ruled in favour of the employer in this particular case it may not always do so.

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