Superannuation is an essential part of Australia’s employment landscape. Whether you’re a small business owner or run a large company, it’s vital to know how much super guarantee (SG) you must pay your employees. This guide breaks down everything you need to know about super payments, from calculating the amount to understanding the impact of ordinary time earnings (OTE).
1. Why Is Superannuation Important?
Superannuation, or “super,” is money set aside during an employee’s working life to support them financially when they retire. As an employer, you are required by law to contribute to your employees’ super, ensuring they have adequate savings for the future. But the rules around super can get complex, especially when calculating the correct amount to pay.
The minimum SG rate for the financial year starting 1 July 2024 is 11.5%, and this will increase to 12% from 1 July 2025. Missing super contributions or paying the wrong amount could lead to penalties, which is why it’s crucial to understand the ins and outs of the superannuation system.
2. How to Calculate Super Guarantee (SG) Contributions
Before you start calculating how much super to pay, you must first determine if your employees are eligible for super. Most employees are entitled to receive super if they earn more than $450 in a calendar month or work for more than 30 hours per week.
Once eligibility is confirmed, calculate the SG by multiplying the employee’s ordinary time earnings (OTE) by the SG rate. You can use the Australian Tax Office’s (ATO) superannuation calculator to make this process easier, but understanding how to do it manually is also useful.
3. Super Guarantee Rate and Deadlines
Remember, you must pay super at least four times a year. Missing the due date means you could incur the Superannuation Guarantee Charge (SGC), which adds additional penalties on top of the SG you should have paid. Here’s a breakdown:
- SG rate for 2024-2025: 11.5% of ordinary time earnings.
- SG rate for 2025-2026: 12% of ordinary time earnings.
If you hire an employee part-way through the quarter, the super you pay will be calculated based on their earnings from the day they start. Here’s an example:
Example: How Much Super to Pay
Imagine you employ Danni in the July–September quarter. Her ordinary time earnings for that period total $15,000. To calculate how much super you must contribute:
$15,000 × 11.5% = $1,725.
You must contribute $1,725 to Danni’s super fund by 28 October 2024.
5. What Are Ordinary Time Earnings (OTE)?
Ordinary time earnings (OTE) are the basis for calculating super contributions. These are the gross wages your employees earn during their regular hours, before tax is deducted. OTE includes:
- Commissions
- Shift loading
- Annual leave loading
- Over-award payments
- Bonuses
- Some allowances
It’s important to distinguish OTE from overtime. Overtime payments do not count towards OTE, provided the employee’s ordinary hours of work are clearly specified. This is where many employers trip up—if you’re paying an annualised or lump sum salary that includes overtime, make sure the overtime payments are clearly identified. If they aren’t, all the hours worked will count as OTE.
6. Maximum Contribution Base
Did you know that you don’t have to pay super on your employees’ earnings above a certain limit? This limit is known as the maximum contribution base. For the financial year 2024-2025, this is set at $65,070 per quarter. If your employee earns more than this, you only need to pay SG on the first $65,070.
For instance, if Rory, your marketing manager, earns $70,000 in a quarter, you only need to pay super on the first $65,070:
$65,070 × 11.5% = $7,483.05.
Any earnings above $65,070 are excluded from the calculation.
7. Back Pay and Superannuation
Super must also be paid on back pay that is classified as ordinary time earnings, even if the employee no longer works for you.
Here’s an example:
Sue worked for your company from January to June 2024, but you realise in September 2024 that you underpaid her. You owe her back pay of $1,200. Because the back pay is processed after 1 July 2024, you must calculate her super at the new SG rate of 11.5%.
$1,200 × 11.5% = $138.
Make sure you pay the super contribution for Sue’s back pay by the due date for the quarter in which the payment is made.
8. How to Pay Super
To pay super, you must first make sure you’re paying into a complying super fund. Your employees might nominate a specific fund, or you can set them up with a default fund. It’s essential that the payments reach the super fund by the quarterly deadlines, as late payments incur penalties.
Many employers choose to use clearinghouses to process super contributions, which makes the process easier. A clearinghouse collects all super payments and distributes them to the relevant funds.
9. What Happens If You Don’t Pay Super?
If you fail to pay the correct amount of super or miss the deadline, you’ll be required to pay the super guarantee charge (SGC). The SGC includes the super shortfall, interest on the amount owed, and an administrative fee. SGC amounts are also not tax-deductible, making it more costly for your business in the long run.
Stay Compliant with Super Payments
Calculating superannuation contributions might seem complex, but it’s an essential part of running a business. Always stay on top of changes to the SG rate, deadlines, and OTE to ensure compliance and avoid unnecessary penalties.
Need help? If you’re unsure about how much super to pay or need assistance with managing superannuation for your employees, contact our team today for expert advice on staying compliant with super laws.