Speaking to My Business, David Farrugia, director of Top Notch Consulting, says that the penalties for late payment of employee superannuation entitlements are actually skewed in the favour of those business owners it is meant to target.
“Superannuation is handled differently to almost every other accounting expense in business: so you have to actually pay the super to get a tax deduction for it; just having the bill is not sufficient,” he says.
“And you pay one day late, whether it's your fault or not, and the ATO's view is ‘tough luck, you're going to cop administrative fees and interest dating back to the start of the quarter it related to’. So the actual calculation of the interest is not appropriate, because it's not late until after the due date, yet when you calculate the interest, you've got to go back to the start of the quarter it relates to.”
While this can be a costly exercise to rectify for business owners who have been caught unawares, David says payment dodgers feel like they have gotten off lightly.
“It's not as bad on the employer where they've deliberately gone out of their way to avoid it, and usually the ones that are really big culprits, they've got a couple of quarters [unpaid],” he says.
“They sort of feel that they dodged a bullet for a while, now they've got to pay some extra money to sort this out; they don't like it, but such is life. I just don't feel like these employers are really upset.”
According to David, the archaic rules are likely an “old-fashioned oversight” on the part of the ATO, but that is little comfort to the business owners trying to do the right thing who are stung with penalties because of administrative errors, even those for which they are not responsible.
“People who do continue to dodge, they should be penalised to the highest degree. But the ones where – and I've got one client that uses a payroll bureau, the bureau accidentally puts two digits around backwards, the super ends up bouncing. By the time we find out what's gone wrong, why it's bounced and get it all sorted out, we've now missed the deadline. It's just not appropriate to penalise people for those sorts of mistakes, it's just human error,” he explains.
If you are one of the businesses to have been caught in this unfortunate trap, don’t think you are alone – David says that among his client base, inadvertent errors are happening around 50 per cent of the time.
“My clients have got 50 to 100 employees: you're pretty much changing two or three employee's details a quarter now, because so many people are going into self-managed super funds, and the rules about the information that you've got to provide for them is different, so you're relying on the employee to give you the right information,” says David.
“There's no formal letters half the time, so it's handwritten or even though it's a Word document, it's not a formal letter from the super fund saying 'this is what you need to do'. So there is so many opportunities for human error to creep in whenever there's a change in superannuation details.”
Debate about the issue erupted recently after a survey suggested that almost one third of employers are withholding all or part of the superannuation entitlements of their employees.