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The pitfalls of using clearing houses for Super Guarantee payments is leaving many small businesses in the lurch.
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SG compliance activities expose common issue with clearing houses
28 March 2024
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The Super Guarantee (SG) penalty regime has been described by many including myself as “draconian”. It does not distinguish between an essentially compliant employer trying to do the right thing and a serial offender when it comes to their SG obligations.
The SG penalty regime throws the kitchen sink at them both. If you are late there is the requirement to prepare a SG charge statement (SGC), charge interest from the start of the quarter the late payments relate to, calculate the SG amount using a different earnings base, and add a fixed penalty amount ($20) for each employee underpayment. If that was not enough, the whole amount is non-deductible to add salt to the wound.
This is what the law requires and therefore the ATO hands are tied, even if you are only one day late. Further penalties of up to 200 per cent can apply (Part 7 penalty) if you lodge your SGC late, but the ATO has the discretion to remit the penalty in part or in full.
With the advent of single touch payroll (STP), the ATO have more real time data to undertake compliance activities to detect employers who are not meeting their SG obligations.
The IPA has received member feedback that ATO compliance activities are unearthing a common problem that many small businesses are encountering as a result of these enquiries. Unfortunately, this story does not end well so no happy ending in sight.
These compliance activities can go back many years causing further angst from employers caught in the compliance nightmare.
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Many small businesses schedule SG payments in their payroll systems before the due date which is 28 days after the end of the previous quarter. Many use clearing houses to facilitate the movement of funds into each employee’s superfund and here lies the underlying issue.
The ATO ignores the date the small business makes the payment to the clearing house. Instead, it looks at when the clearing house has made the payment into the employee’s superfund.
The ATO website makes this very clear, and an extract appears below:
"Your employee's super contribution is only considered paid; on the date it's received by the super fund. If you are using a clearing house, payments made to the clearing house that are not processed, or do not reach the super fund until after the payment due date, are considered late payments.
Processing times vary between clearing houses. You must check the processing timeframes required by your clearing house to ensure your payments will be processed before the payment due dates.’
Despite the numerous ATO reminders, many small businesses are ignorant of this requirement and consider that they met their obligations when the funds have left their bank account. The only exception is if the employer uses the ATO clearing house. If this is the case, then the date the funds are received by the clearing house becomes the operative date. The draconian SG penalty regime comes into full swing penalising compliant small businesses as if they are serial offenders.
Whilst the Government has indicated that the SG penalty regime will be reformed under the proposed Pay Day Super (PDS) model, there is no relief for small business entities anytime soon as PDS is proposed to commence on 1 July 2026.
More and more small businesses will come under the radar as the ATO looks backwards on SG payment history. What we need is an interim legislative fix, as waiting for SG penalty regime to be reformed under PDS is a lifetime away. An interim legislative fix allowing the ATO to be given more discretion on how to apply the penalty provisions for employers trying to do the right thing is urgently needed.
By Tony Greco, general manager of technical policy, Institute of Public Accountants
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