At the compliance coalface of superannuation

by 11 May 2010

Compliance with superannuation rules and regulation is an oft-moving goalpost for HR and employers. HR Leader examines some of the latest issues and trends in superannuation and looks at how employers can tick all the compliance boxes

Following the release of the Henry Tax Review last week, employers may have to contribute a minimum of 12 per cent to the superannuation funds of their employees from July 2019.

Yet employer contributions – currently running at a total of around $72 billion a year – are often already over the current mandatory contribution level, proving that super is high on the agendas of many organisations.

But as always, ever-changing compliance and regulation are set to provide employers with a whole new set of challenges.

Pauline Vamos, CEO of the Association of Superannuation Funds of Australia (ASFA), says unions have warmly welcomed the increased rate of contributions to superannuation, and employers can expect superannuation to have a higher profile in negotiations about remuneration in the future. Already, around one in four employees receive the benefit of contributions in excess of 9 per cent, she notes.

Over time, Vamos also notes that employers are paying to more and more superannuation funds as employees on an individual basis exercise choice of funds. Payroll systems need to cope with this, she adds, including the ability to pay contributions to the self-managed superannuation funds of employees. In terms of compliance, Vamos states that employees need to make sure that their payroll and payment systems are equipped to do this, and to have full employee information (full name, date of birth, tax file number, current address, insurance preferences) on hand.

Regulatory changes in the wind

Adam Kirk, general manager of Sherlock Consulting, a consulting firm which specialises in corporate super and employee benefits, says that government legislation is suggesting that the future of employer superannuation is “My Super” – an “overly simplified superannuation default with no investment choice and limited insurance options. The concern from an employer point of view is that it could serve to increase the apathy that already exists around superannuation,” asserts Kirk, who notes that statistics have proven that adviser driven superannuation plans have higher average balances than other styles of default superannuation.

Vamos believes the reduction in the caps to the amount of tax deductible superannuation contributions that an individual employee can receive the benefit of means that more employees may inadvertently exceed the caps.

While this is primarily the responsibility of the employee, she says there will be pressure on employers to let employees know when they are in danger of exceeding the caps in any given year because of the combination of compulsory and salary sacrifice contributions.

“As a result of the recommendations of the Cooper Review there may be changes to legislation so that most employers are required to use electronic means to provide superannuation contribution payments and also information about the employees the contributions are being made for.”

Common super pitfalls

Superannuation should not be an administration nightmare for employers, says Kirk, who adds that corporate superannuation specialists can recommend default solutions that minimise the time spent on administering employer superannuation.

“Modern superannuation funds can map their systems to accept contribution files as they are produced by your payroll system,” he says.

“This will minimise double handling and significantly reduce the number of potential errors that could occur. In addition they also run efficient clearing houses at minimal or no cost meaning only one contribution need be made no matter how many employees have elected choice of fund.”

Vamos says that a common pitfall for employers is not calculating compulsory superannuation payments (superannuation guarantee) correctly and also not paying them on time. She adds employers must use ordinary time earnings, as defined in the superannuation guarantee law, to calculate the minimum super guarantee contributions required for your eligible employees. Some employers previously were able to use a special earnings base (lower than ordinary earnings) which was set out in an industrial award or agreement.

Vamos also notes that many contractors, depending on the nature of their engagement with an employer, are also entitled to superannuation guarantee contributions. “Having an ABN does not necessarily exempt a contractor from being eligible for superannuation guarantee,” she asserts.