The Federal Government has a problem. They realise that people are living longer. And this means people need more money to keep themselves alive.
The Federal Government also knows that most people do not have sufficient funds for retirement so if they live longer, it means more support will be required from Government pockets; otherwise, we will have a nation living off cabbage soup. Now before I get complaints, I don’t have anything against cabbage soup (I have been told it is very healthy).
But then again cabbage soup may not be so bad considering you may have no teeth or unable to stand because your knees have become the equivalent of Raspberry jelly.
The government worked out that this is a problem it does not have the money to solve and set up a committee to see who they could pass the problem onto.
In their wisdom the committee decided that employers should be responsible for solving the ‘lack of pension money and living longer’ problem by increasing the rate of Superannuation employers should pay. You can imagine the Government meeting that came to that conclusion. I am sure they would have been many ‘hi 5’s’ flying around and many pats on backs as they congratulated each other in saving the Government Billions and at the same time passing the entire cost and burden to mostly small business who employ 97% of all workers in Australia.
There was another problem. If employers were burdened with the increase in one go, it would be not only be bad PR but a possible cash flow issue for business.
And that would make employers angry so ‘to assist’ the Government will bring increases in over a few years. They have also been quiet about it too.
My inbox is full of emails from the ATO telling me that if my clients overclaim on Work Related expenses they will put me in stocks then then blow me to smithereens.
But about the increase in Superannuation. Not a squeak. Nil. Zilch. Nothing.
But from 1 July 2021 Superannuation Guarantee (SG) will rise from 9.5 per cent to 10 per cent – an increase of 0.5%.
It keeps going up by 0.5% every year until it reaches 12 per cent on 1 July 2025.
In other words, your employee costs will go up by 2.5% over the next four years.
The first thing we will say is plan for it. I tell all my clients that no matter what happens make sure you pay employee Superannuation on time. Why? Well, there are two reasons:
You lose the tax deduction.
Not many business owners know this but if you pay Superannuation 1 day late you lose the tax deduction forever. Yep, even when you pay it.
Let’s say you are a company, and you had to pay Superannuation of $5,000 by 28 July 2021 but got busy and paid it 3 August 2021.
That mistake costs you $1,375 in lost tax deductions.
Red Tape and More Costs!
Even if you are 1 day late in paying Superannuation, you must complete Superannuation Guarantee forms the size of Tasmania and do all kinds of weird and wonderful calculations that only accountants get excited about. And you will ask your accountant to complete them because unlike them you do not get excited about weird calculations. And that means they will send you a bill so they can buy their next suit or a pair of high heels.
It does not end there because for every employee paid late you must pay interest plus $20 ‘administration fee’ per employee per quarter.
Trust me when I tell you that these charges add up and are very expensive.
If you are struggling for cash flow and you have options to pay some liabilities but not all, then make Superannuation payments a priority. But see below as I provide a Tip to ensuring you always have money for Superannuation.
But what if you do not want to pay the increase in Superannuation? Can you get out of it?
Well, maybe. But you must dig out and dust off employment contracts or letters of offer you gave to your employee.
Your options are:
- You pay the extra 0.5% leaving the employees take home pay the same. You lose out by 0.5%.
- You pay reduced net wages to cover the extra 0.5% which means there is no change for you, but your employee pays the increase in Superannuation.
But for option two you need to check what your employment contract states. If it says ‘$XX,XXX plus Superannuation’ then you cannot use option 2. You can only use option 2 if your contract states ‘$YY,YYY including Superannuation’
Never Be Short of Cash for Superannuation & PAYGW
My top tip to ensure that you always have money to pay for Superannuation?
Put money away. Yeah, I know not rocket science and I have told you nothing you don’t already know.
But we have tested the method below with clients who previously struggled in putting money away for Superannuation and BAS and if you are disciplined, it works.
Basically, when you run payroll, you make net payments to your team. At the same time, you transfer the PAYGW (employee tax) and Superannuation into a separate savings account immediately. If you pay your team weekly, then you do this weekly. If fortnightly, then you do it fortnightly.
Once in the savings account, DO NOTE TOUCH IT except for payments to the ATO or to Superfund accounts.
If after the transfer you find you are running short of cash in the business, it means the business is running beyond its means and you either cut costs or need to increase income. Do not touch Superfund/ PAYGW amounts. It’s not yours to touch – it belongs to someone else.
We have found that when clients use the above method, they have funds to pay the ATO and Superannuation but if cashflow is tight in the business it allows owners to review all costs and opportunities which exist.
We at the WOW! Advisors & Business Advisors Group transfer Superannuation, PAYGW, BAS and even our expected profit every week and then transfer corporate taxes every month. By doing this we find we are never short of cash to pay the ATO.
If you would like to know more about how this process works, give us a call.