There are penalties (both monetary and otherwise) for paying employees super late!
Paying employees super late comes at a cost
As all business owners should know, superannuation must be paid on employees wages and salaries. Generally a business has until 28 days after the end of each quarter to make payment. The due date is completely inflexible, if you are late by one day, you are late, and penalties and further administrative and reporting obligations immediately apply.
However the Government has recently introduced new legislation which aims to simplify this process including reducing penalties associated with late payments.
Under the current system, if you pay late you actually could potentially be required to pay more super on behalf of your employees (than was otherwise the case), plus interest (which is calculated in a manner that imposes a further penalty on the employer), plus potentially further penalties.
Under the proposed new system, the potential requirement to pay more super will be removed, the interest will be calculated on a shorter period and remove the inherent penalty element, and the level of administrative penalty that can be imposed will be reduced.
The proposed new laws will take effect from 1 July 2016 (if passed).
but don’t view paying employees super late as a cash flow management strategy
Seeing an announcement like this actually worries us. If employers see this relaxing of obligations as an invitation to use paying employees super late as a cash flow management strategy there could be serious ramifications.
While it may cost you less than it would have, there is still an immediate monetary cost. The interest rate is substantial and adds up quickly. Not to mention the cost to prepare the additional reporting that is required once you are late.
But the biggest cost, is the loss of employee trust and loyalty that, almost without exception, results!
While employers some times don’t recognise it, an employees superannuation is genuinely part of their remuneration package and these days everyone is well aware it is their money, even if they can’t access it until later in life. Equally, everyone knows how important it is to have their superannuation savings continually contributed to and growing. So each time they see their contributions are not being made when due, alarm bells start ringing.
A sure sign of a struggling business is paying employees super late
As business advisers, we can also tell you that paying employees super late is always a sign of a struggling, arguably unsustainable, business.
Our advice has always been to not just consider the net wages that need to be paid each week, fortnight or month. Many businesses focus on whether they can afford to pay those net wages, and if so, they relax and feel they are ok.
But the truth is, on the day wages are due, if you can’t afford to pay that pay periods Net Wages PLUS the PAYG Withholding (tax) PLUS the Super, then I am sorry to tell you, there is probably an issue!
Even though the PAYG Withholding and the Super may not be due for some time, not having the funds for them on pay day means you have created a new debt. If this repeats for a few pay periods, that debt will be substantial and get out of hand before you know it.
Make continual provisions to avoid paying employees super late
We always recommend to have a separate bank account into which the PAYG Withholding AND the Superannuation is paid each time a pay run is processed. That way the funds are held ready for paying the ATO and Super Funds when due.
And we always recommend keeping your hands out of the cookie jar!
If you are having trouble paying your employees super (and/or tax liabilities including PAYG Withholding) we encourage you to seek help as soon as possible. A cash flow forecast may be all that is needed to help navigate difficult times. Alternatively consideration may need to be given to your business Strategy and/or its Execution.
The problem doesn’t have to be terminal, but it is one of the first signs a business is in trouble and if that is the case, we want to help identify the problem and fix it, or worst case call “barlees” before the trouble takes down more than it has to!