Insights | 12 Feb 2024

Significant exposure to employers for underpayment of Superannuation Guarantee

Superannuation is the most heavily penalised tax obligation. Paying Superannuation Guarantee (SG) incorrectly can be costly to employers.

SG Reviews

The Australian Taxation Office takes the non-payment of SG seriously. They have a focused compliance program that provides enforcement action to change employer behaviour and recover unpaid SG. Employers should be reviewing their SG transactions and calculations to ensure they are meeting their tax obligations.

In assisting employers with SG reviews, we have found that while most employers have reviewed wage code configuration and conducted high-level reviews of the SG calculations, they have not reviewed their transactional data, mostly due to the volume of payroll transactions that may exist for businesses. It is recommended the business reviews the transactional data, including the timing of SG payments to ensure employers are paying the right amount of SG on time.

Financial Exposure

The financial exposure to employers where SG is underpaid will likely be five times the actual shortfall (or more, subject to the facts and circumstances). This is highlighted in the below example:

Steps Impact Running total
Initial shortfall $10,000 $10,000
Super Guarantee Charge (SGC) * $2,500 $12,500
Interest (10% pa) $1,250 $13,750
Admin penalty** $400 $14,150
Part 7 penalty (200%) $28,300 $42,450
Loss of tax deduction (25%) $10,612 $53,062
If applied over the 4-year amendment period         – $212,250

*Assumed 25% gross up to factor in the additional super payable on overtime and other payments that are not considered “ordinary time earnings” for SG purposes, however, are included for the purposes of calculating the SGC.

**Assumed 20 employees underpaid $500 each.

Based on the above example, an underpayment of $10,000 comes with a financial exposure of almost $55,000. This exposure effectively results from the employer being liable to pay the shortfall rate of superannuation against all salary and wages (including overtime and termination payments), interest, penalty charges and the tax impact due to the loss of the payment being deductible for tax purposes.

This initial $10,000 shortfall becomes close to $215,000 over the ATO review period which is generally 4 years, and this is assuming there are no late payments.

Contact Pilot

If you would like assistance in ensuring your governance measures are in place to meet your superannuation guarantee obligations, contact Angela Stavropoulos, Kristy Baxter or Kylee Smith via or call 07 3023 1300.

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