When I engage as a fractional CFO, one of the first deliverables I’m often be charged with is a review of the company’s financial setup: any burning issues or potential ‘skeletons in the closet’ - especially for a company prepping for a cap raise or a sale. And if the client is Australian, I often joke that I can almost guarantee one area that’ll end up getting flagged: superannuation. From personal experience, my best guesstimate is that over 60% of startups, SMBs and not-for-profits have exposure to underpayment or late payment of super.
There are a few pitfalls that keep recurring – to the extent I wonder why the ATO doesn’t do a better job of education around these specific areas. Most bookkeepers get these wrong, in fact a worrying number of accounting firms get these wrong. It’s always a concern when a professional is getting the basics wrong, as you then wonder how many other clients of theirs are also in breach of super legislation. Bearing in mind individual board members can be personally liable for super and other employee payment breaches*, this is one area you don't want to be messing up.
* By way of example, see this director who was personally hit with a $53,000 super bill a year after the company was wound up.
Here's my super guide to super bloopers - to help keep you of trouble.
Pitfall 1: paying super on or just before the super deadline is a breach.
Super has to be paid quarterly, and the ATO publishes the deadlines that super has to be paid by: 28 October, 28 January, 28 April, 28 July.
It goes on to state: “your employee's super contribution is only considered 'paid' on the date it's received by the super fund. Not the date it's received by the clearing house.” Super doesn’t get paid by the employer directly to the employees’ respective super funds – instead it gets remitted to a clearing house, which then forwards it on to the relevant funds. As an employer you need to allow enough time for your payment to get from the clearing house to each super fund*.
* an exception is if you process it manually to the ATO’s Super Clearing House, a free service available to small business with fewer than 20 employees or less than $10m turnover.
As an example, most startups in Australia use Xero as an accounting system, and most of these rely on Xero’s “Auto Super” feature. Xero direct-debits the total payment out of the employer’s bank account and then channels the funds via a clearing house called SuperChoice – which in turn distributes the funds to each employee’s fund. You’d have to contact SuperChoice to confirm what their processing times are, but it’s generally recommended to allow five business days for the above process to complete. Some other sources recommend leaving as much as ten business days. Pro tip: ask a trusted employee to login to their super fund account and verify the date their last super payment was received, and compare this to the date it was sent to the clearing house. This will give you an idea of the time lag. If you have an employee with a self-managed super fund (SMSF), even better, they can just look at their SMSF’s bank account.
So my recommendation is: if you want to be sure you’re not breaching super laws, process your super payment by the 14th of the month – this then leaves ten business days to get the payments through the system and into the super funds.
This is by far the most common breach I’ve encountered. I’ve had this argument with many an accountant, including practising accountants who’ve been handling super on behalf of dozens of clients over the years. In fact here's a good hack – if you need to assess the experience of an accountant, this is a good question to have up your sleeve.
Pitfall 2: only paying super on employees and ignoring contractors
If I had a penny for each time I’ve been told by an employer that no superannuation needs to be paid on a contractor because they’re employed under a contractor agreement that states that no super is payable (or that the fee paid already includes super), then I’d have - a bunch of pennies.
Of course it’s not that simple. A contractor can be considered an employee for super purposes. The ATO offers guidance on what to consider in making the assessment. If the contractor is mainly paid for their labour, and if payment isn’t dependent on achieving a specific result, then you likely need to pay super on their fees. The exception is if the contractor is invoicing you through a company (Pty Ltd) or a trust, then you don’t need to pay super (because the obligation lies with the company or trust that hires them, not you).
You can’t simply 'contract out' of your obligation as an employer to pay superannuation. By definition super needs to be remitted to the worker’s super fund, so anything you pay directly to the worker is not super and can’t account for super – regardless of what you may agree and document in the contract with them.
Pitfall 3: no super is payable on car allowances, right?
Not so fast! The ATO says, “expense allowances, that is, those allowances paid to an employee with a reasonable expectation that the employee will fully expend the money in the course of providing services, are not ‘salary or wages’.” They are therefore not subject to super.
So what does this ‘reasonable expectation’ mean in practice? It would be unrealistic to expect the employer to verify each month exactly how much the employee has spent on work-related car expenses. However, the employer does need to demonstrate some reasonable basis for believing that the car allowance is fully spent by the employee – in order to avoid super. This may or may not involve obtaining documents or receipts from the employee, though obviously if the employee provides evidence this adds more certainty to the analysis.
I’d suggest that at a minimum, once a year the employer confirms with the employee how many work kilometers they are driving on average, and estimates a cost per km (based on the running costs and/or the model of vehicle). By multiplying these, the employer can ensure that the allowance is no more than the assumed running cost – and if it is, then the excess would become subject to super.
Pitfall 4: not all bonuses are the same
Is super payable on a bonus? It depends. In most cases super will be payable on the bonus: where the bonus is remuneration for work performed during the employee’s normal hours of work (what’s called ‘ordinary time earnings’), then super should be paid. This includes things like sales performance bonuses, sign-on or retention bonuses, Christmas bonuses, etc.
Super however won’t be payable on a bonus paid for overtime work. This is simply because super is generally not payable on wages paid for overtime. So a bonus paid to reward an employee for overtime effort typically would not be subject to super.
How bad is a breach?
Does any of this actually matter? With pitfall 1 for instance, does anyone really care if the payment is only a couple of days late, and it’s an honest mistake?
I’ve been in a situation with a client where we needed a definite answer to this. The client was a mid-sized charity, doing great things to help people in need. The payroll team had been making superannuation payments in good faith to 100+ staff in the days immediately preceding the deadline each quarter, going back many years. I had to break the news that this was a technical breach. We reported the breach to the board - given the directors were personally liable for super - and the board needed to know what to do. We worked with a specialist (himself an ex-ATO employee) who used a back-channel to contact the ATO off the record. The ATO's answer was clear: we get that it’s an honest mistake, and we want to be compassionate, but we have no discretion under the legislation to give you a free pass, if you (or a disgruntled ex-employee) brings it to our attention, then we have no option but to require you to lodge and pay what’s called a super guarantee charge (SGC).
And therein lies the rub. Fixing the oversight isn’t that straightforward: you need to lodge a SGC statement and pay the SGC. The SGC includes 10% interest and a $20 admin fee per employee. This may not sound like much. But guess what – if you’ve been paying super on 100+ employees late every quarter for the past four years and want to fix it, that’s now 16 quarters x 100 employees x $20. And the interest is not simply calculated on however many days late the super was paid, instead it’s worked out over the period beginning at the start of each relevant quarter and ending the date the SGC statement is lodged. So it can add up to several years of interest. Cost aside, all these need to be calculated and lodged, so there’s also the internal admin overhead. It’s worth noting the SGC is not tax deductible either.
Underpaid super
With all the above pitfalls, it's perhaps no surprise that many employees are missing out on part of their super. According to analysis of ATO data by the Super Members Council, one in four workers are missing out on super, with an average under-payment of $1,800 per person.
This is part of the reason why the Australian government has introduced 'Payday superannuation' legislation, which will force employers to pay employees their super at the same time as they pay their wages. Assuming the legislation gets through parliament, from 1 July 2026 employers will lose the cashflow benefit of delaying super payment until the end of the quarter - and conversely employees will gain the benefit of getting cash into their super earlier.
Bonus tip
Make sure you pay super contributions for the June quarter before 30 June in order to get the tax deduction for them in the current financial year. Even if you're not in a taxable position yet, if you're lodging a R&D tax claim, then getting this timing right can bring the refund forward a year.
Contact us for help with getting superannuation right.
Comments