Monday 29 May - Creating Confidence In How People Are Paid
Payday superannuation reforms and what you need to know.
Introduction:
The Australian government is currently considering reforms to the superannuation system, specifically focusing on tying Superannuation Guarantee (SG) payments to employees' regular payday. This change aims to increase the frequency of payments, ultimately leading to better monitoring, improved compliance, and enhanced retirement savings for workers.
Current SG System and Concerns:
Under the existing system, employers are required to make SG payments at least quarterly, totaling 10.5% of an employee's income. However, there have been concerns that some businesses are falling behind on their SG obligations, resulting in significant amounts of unpaid superannuation. In fact, the Australian Taxation Office (ATO) estimates that approximately $3.4 billion in superannuation went unpaid in 2019-2020. This has raised alarm bells among the government, unions, and superannuation funds, as the compounding nature of superannuation means that this shortfall could significantly impact workers' retirement savings in the long run.
Benefits of Increased Payment Frequency:
One of the key reasons behind the proposed reforms is to empower employees and provide them with greater visibility into their superannuation payments. By aligning SG payments with regular payslips, workers will have more opportunities to monitor their contributions and identify any discrepancies. This is particularly important for casual or part-time workers who often have irregular pay schedules and may find it challenging to track their superannuation entitlements through infrequent payslips.
Additionally, increasing the frequency of SG payments can have a positive impact on retirement savings. According to projections, a 25-year-old median income earner could see a substantial improvement of $6,000 in their superannuation balance at retirement by receiving fortnightly SG payments compared to the current quarterly system. This highlights the potential long-term benefits of more regular contributions.
Penalties for Non-Compliance:
Under the existing system, employers who fail to pay the required SG by the quarterly deadline face penalties known as the Super Guarantee Charge (SGC). The SGC includes the SG shortfall, a choice liability penalty, interest of 10% per annum, and an administration fee of $20 per employee, per quarter. The ATO aims to work with businesses that fall behind on their SG timelines but reserves the right to impose harsher penalties, including legal proceedings, to recover unpaid amounts.
Expected Impact on Businesses:
While the proposed reforms may require businesses to adjust their processes and cash flow management, the Australian government has provided a three-year transition period to facilitate a smooth transition. During this time, consultations will be held, giving employers an opportunity to share their views and concerns with the ATO and Treasury.
Despite potential challenges, industry experts suggest that the administrative impact for small businesses may be minimal. With the advent of digital initiatives like SuperStream and single-touch payroll, which automate the payment process, paying superannuation more frequently than quarterly is becoming increasingly streamlined. Many accounting platforms already offer the option for businesses to set custom superannuation payment times, indicating that the necessary technological infrastructure may already be in place for some organisations.
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Payroll - Did you know? (Payroll Tax)
Payroll Tax
Did you know that the car allowance exemption rate for payroll tax purposes is based on the ATO reasonable rate from the prior financial year? Therefore, in FY22-23 the payroll tax exemption rate is 72 cents per kilometre, rather than the current ATO rate of 78 cents per kilometre.
Private schools blindsided by ‘shock’ budget tax.
Victoria’s peak private school body says it was blindsided by the Andrews Government’s decision to impose a payroll tax on non-government schools.
Announced in the Victorian Budget on Tuesday, the measure will apply to roughly 110 of the state’s wealthiest high-fee private schools, who will now lose their payroll tax exemption from July 2024.
Independent Schools Victoria’s chief executive, Michelle Green, said the news was a “shock” that will “be greeted with dismay” by parents.
“It was made without consultation and is based on an arbitrary definition of a ‘high-fee’ school,” Green said in a statement on Tuesday.
“It is likely to have a damaging impact on the operations of many Independent schools, with the potential to disrupt the education of their students.”
The Victorian Government had defined a ‘high-fee’ school as one charging annual fees of more than $7,500, a definition that captures schools that charge fees in the mid-range.
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Green said the latest decision assumes that all schools that charge more than $7,500 have the financial resources to weather the tax without cutting services or, alternatively, raising fees.
“Either course of action will be a major cause of concern for the growing number of parents who make significant financial sacrifices to send their children to an Independent school,” Green said.
“We’ll be seeking urgent talks with the government to establish the rationale – and to point out the implications – of this decision, which will require legislative change.”
Jacinta Collins, National Catholic Education Executive Director, has called the Victorian Government’s decision “irrational and unprecedented”.
“The move by the Victorian Government has serious cost of living implications and puts greater pressure on school fees and a teaching workforce that is already under considerable strain,” Collins said, adding the tax is “inconsistent with the minimum fee expectations of the national school funding model”.
“School funding is means tested according to the socio-economic status of families who send their children to a non-government school.”
Collins said a reported $7,500 arbitrary threshold would “wrongfully categorise” many Catholic schools as high-fee schools.
“It would set the payroll tax threshold at the midpoint of the minimum fee expectations of families.”
Collins went on to point out that Catholic school families are already contributing significantly towards their children’s education through school fees and building levies, alleviating the burden on governments.
“In fact, our parents contribute 25 per cent of the Student Resource Standard, and they also contribute more than 90 per cent of the costs required to support school buildings and other capital work. Catholic schools aim to be as affordable and accessible as possible to meet the needs of their families,” she said.
“It makes no sense when governments are trying to reduce cost of living pressures on families and attract teachers to the profession.”
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Everything you need for end of year 2023 in our live EOY training with opportunities to ask questions of experts including ATO
Australian Payroll Association - May 2023