Oops!... you’ve found a superannuation guarantee error

By Hayley Lock, Stacey Biggar & Sam Gathercole

It’s not uncommon for employers to make a mistake when determining their Superannuation Guarantee (SG) obligations.

In our experience, these are generally inadvertent and are caused by a combination of the complexity of SG law and payroll configurations that have not been reviewed regularly.?

The SG Charge (SGC) penalty of up to 200 percent can quickly add up to a significant liability for employers who have failed to comply with their obligations.

The Australian Taxation Office (ATO) has issued?Draft Law Administration Practice Statement PS LA 2021/D1?which outlines the factors the administrator will consider in determining the percentage of the SGC penalty to be remitted.

When finalised, it will replace the ATO’s current approach in PS LA 2020/4.

While many of the factors considered by the ATO remain consistent between the versions, there has been some changes to the four-step process adopted which can result in a different remission percentage in some circumstances.

The new four step process is:

• Step 1:?Consider remission based on the employer’s attempt to comply with their obligations through late payment.
• Step 2:?Consider remission based on the employer’s attempt to comply with their obligations by lodging an SG statement.
• Step 3:?Consider any increase or reduction in penalty based on the employer’s compliance history.
• Step 4:?Consider any other mitigating facts or circumstances that warrant further remission.

The most notable change is the addition of Step 1, which is not in the current approach, this step can allow a remission of between 10 percent-40 percent where a late payment is made, with the exact percentage based on the timing of the late payment made.

The new draft PS LA is also more prescriptive on what the remission percentage would generally be for various mitigating facts at Step 4 and incorporates some additional examples such as where a third party error (such as with a clearing house) led to the contributions being late.

Notwithstanding the change in approach, the key messages remain the same:

• penalty remission will be higher for employers who rectify shortfalls through lodgement of SGC statements quickly, have a good compliance history and have taken reasonable steps to comply with their SG obligations; and
• in respect of historical quarters which could have been rectified during the SG Amnesty period (concluded 7 September 2020), if the employer does not voluntary disclose shortfalls prior to ATO compliance action, penalty remission would only exceed 50 percent in exceptional circumstances. That is, there are limitations on the ATO’s capacity to remit the SGC penalty in these circumstances (which was a quid pro quo of the SG Amnesty legislation).

So what should you do as an employer?

As we move towards the implementation of STP 2.0 where the ATO will gather much more detailed payroll information on a real time basis, employers should think about their Superannuation Guarantee governance processes.

Who decides the superannuation treatment of new payroll codes? When was the last time the superannuation / payroll system configurations were reviewed? What is the appropriate frequency for a superannuation / payroll system configuration review?