On May 24 2018, the government first introduced a 12-month superannuation guarantee (SG) amnesty. The relevant Bill failed to pass the Senate and then lapsed when the federal election was called on 11 April 2019.
On September 18 2019, the Bill was reintroduced [the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019], with an amnesty period beginning on May 24 2018 and ending six months after the legislation receives Royal Assent.
The amnesty is being offered as a last chance for employers. In this version of the amnesty, if a taxpayer doesn't take advantage of the amnesty in relation to historical shortfalls, they will be subject to a penalty of up to 200%. And the Commissioner of Taxation will lose the power to remit that penalty below 100% for historical quarters.
There are a number of areas where the obligation to pay compulsory superannuation is not clear-cut. The most common mistakes, where well-meaning business have inadvertently underpaid compulsory superannuation, are set out below.
Trap 1: not understanding ordinary time earnings
There should be no superannuation guarantee charge when compulsory superannuation is paid on time, at the correct rate, on 'ordinary time earnings'. 'Ordinary time earnings' means the earnings in respect of the ordinary hours of work. The difficulty in some cases is assessing what hours of work are 'ordinary'. Overtime is generally not 'ordinary hours', but complications can arise when:
- a workplace agreement prevails over an award, so that it is not clear what hours are ordinary and what hours are overtime
- hours are designated as 'overtime' but are paid at the same rates as normal hours
- there is no award and no agreement, in which case all hours may be 'ordinary hours'.
the worst cases we have seen are businesses paying compulsory superannuation on 38 hours per week, when in fact all hours were 'ordinary hours'. A mistake like this, multiplied across a workforce, can produce a significant superannuation guarantee charge bill.
Trap 2: contractors who are actually employees
Whether an individual is an employee or independent contractor continues to be the subject of many disputes.
The Australian Taxation Office (ATO) provides a list of factors that they consider when assessing whether an individual is an employee or independent contractor.
These factors are:
- the intention of the parties, as shown in the terms and circumstances of the formation of the contract
- who exercises control over the individual's work
- whether the individual operates on his or her own account or in the business of the payer-particular risk areas here include uniforms and email signatures
- whether the individual is paid for 'results' contracts
- whether the work can be delegated or subcontracted
- who bears the commercial risk
- who provides tools and equipment and who pays business expenses
- other indicators, such as leave.
The list is a helpful overview of the factors to consider. However, applying these factors to a particular individual's circumstances can be much more difficult. Extreme care should be taken when using the ATO's online calculator. While it generally produces the correct answer in clear-cut cases, it does not properly analyse border-line cases. It is also not binding.
There has also been a recent trend in the case law where a further test has been introduced: whether the individual is carrying on a business. This is a different test compared to the ATO's consideration of the factors (above) about whether the individual is acting on their own account. On the business test, if an individual is not carrying on a business, they are an employee.
We have seen a number of unfortunate cases where the ATO (or OSR) has concluded that individuals who were treated as contractors were actually employees.