“Superannuation” – from the sound of this word, it seems to be complicated, right? It’s a program in Australia that lets employees create a retirement corpus for themselves – and every business must comply.
Much like in other countries, Australia has several mechanisms to help its retired population keep “earning” after retirement. Personal savings, government contributions, and superannuation help retirees maintain their preferred lifestyle in their senior years.
In fact, according to the Australian Prudential Regulation Authority (APRA), the total assets in superannuation at the end of March 2022 is $3441.5 billion which marked a 9.7% increase from March 2021.
The number indicates that people are becoming more aware of superannuation and its benefits, especially post the COVID-19 pandemic.
Much like you have a fixed budget for growing your business, you also need to allocate a budget for your employees’ superannuation. Let’s talk about superannuation and how it works for your business.
What is Superannuation?
Superannuation, or “super” for short, is a pension program in Australia. If you’re an employer, you would need to pay a super guarantee to all your employees on top of their salary.
Employers need to pay super for their employees. As of the 8th of November 2022, the super guarantee contribution applicable to employers is 10.5% of an employee’s base salary.
A super guarantee is a fixed sum that an employer contributes to an employee’s superannuation. If the employees wish to enhance their retirement corpus, they can make personal contributions.
Types and Mechanisms of Superannuation
Superannuation isn’t a static process. It’s dispensed to employees in three ways and two mechanisms:
Types of Superannuation
- APRA-regulated fund: This is the super fund managed by the Australian Prudential Regulation Authority.
- Retirement Savings Account (RSA): In Australia, an approved deposit-taking institution will offer new employees make an account for retirement savings. RSA is also managed by APRA.
- Self-Managed Super Fund (SMSF): This is the super you decide to manage yourself. However, it’s regulated by the Australian Taxation Office (ATO).
Mechanisms of Superannuation
Employees have the choice to receive their superannuation benefits in two ways:
- Accumulated funds: Employees and employers can both contribute to this type of fund. The retirees receive the amount that the fund has increased to depending on the returns generated on investment.
- Defined Benefit fund: Much like pension plans, this fund uses a formula to determine a fixed benefit the retirees would receive upon retirement.
Super Details for Employers
As an employer, there are a few nuances concerning superannuation that you need to keep in mind when hiring new employees:
- You are required to request all your employees for their choice of super fund. In case your employees don’t choose a super fund, you need to place a request with the ATO for a “Staple Super Fund” for your employees.
- You need to pay super contributions quarterly each year. You can choose more frequent payments as well.
- Understand the SuperStream requirements and ensure that you’re paying super electronically according to the format mentioned.
- Always maintain records of your super contributions as evidence that you have fulfilled SG.
How Does Superannuation Work?
For employers, superannuation details are easy to understand. You can implement it in three steps:
1. Identify Eligible Employees
If your company has the following types of employees on the payroll, then they’re eligible to receive superannuation benefits:
- The employee is above the age of 18 years
- The employee is under the age of 18 years but works 30 hours per week
Additionally, the eligible employees in the following categories are eligible for superannuation:
- Part-time workers
- Full-time workers
- Casual workers
- Temporary residents
2. Help employees choose their type of fund
You need to provide a Standard Choice Form to all the eligible workers. It’ll let them choose the super fund they wish. Your business must then contribute quarterly each year to this fund towards a superannuation guarantee.
3. Look Up Tax Deductions/Liability
Since superannuation is considered a wage in Australia, the employer is liable to pay payroll taxes on contributions to this fund.
Benefits of Superannuation
Superannuation provides multiple benefits to employers and employees:
- The features of super are simple; employees are entitled to a retirement sum.
- You get investment choices among retail, industry, corporate, public or self-managed funds.
- There’s no penalty for early access to super in the case that an employee has medical reasons for being unable to work.
- Post-retirement, employees receive guaranteed income.
- Employees can receive government contributions to their super fund upon eligibility (maximum $500).
- Employees can get Staple Super Funds that aren’t tied to a single employer – they’re mobile with their careers.
As an employer in Australia, it’s a mandate for you to establish super funds for all your employees. Fortunately, the process is simple to follow and you can easily automate it into your recruitment workflows.
If you’re planning to start a business and hire employees in Australia, it’s a good time to read up about superannuation. While you’re at that, you should start looking into building a solid online presence for your business to keep up with the highly digital market.