Superannuation compliance is one of the most critical payroll responsibilities for Australian employers. Yet, despite its importance, superannuation underpayments remain a widespread issue, leading to financial penalties, back payments, and reputational damage.
With the Australian Taxation Office (ATO) increasing its scrutiny and further super guarantee (SG) rate increases on the horizon, businesses must take a proactive approach to compliance. Preventing errors before they occur not only safeguards employees’ entitlements but also protects businesses from costly consequences.
In this article, we’ll explore the common causes of superannuation underpayments, how to prevent them, and the key steps employers should take to stay ahead of regulatory changes.
Why Do Superannuation Underpayments Occur?
Superannuation underpayments can arise from various payroll and compliance errors, often due to misunderstandings or outdated processes. Some of the most common causes include:
- Incorrect calculation of ordinary time earnings (OTE): The SG is generally based on OTE, but confusion over what qualifies—such as certain allowances and bonuses—can lead to underpayments.
- Failure to update payroll systems for rate changes: With SG rates increasing incrementally, outdated payroll settings can result in ongoing miscalculations.
- Missed super payments for contractors: Some businesses mistakenly assume that super only applies to employees. However, under the ‘deemed employee’ rules, certain contractors are also entitled to super contributions.
- Late or missed payments: Super must be paid at least quarterly. Late payments not only attract penalties but also become non-deductible for tax purposes.
- Payroll system errors: Incorrect settings, data entry mistakes, and integration issues can all lead to inadvertent underpayments.
Best Practices for Superannuation Compliance
To ensure compliance and prevent underpayments, businesses should implement the following key strategies:
1. Conduct Regular Superannuation Audits
Regularly review payroll records to verify that super is being calculated and paid correctly. Cross-check payroll data against ATO guidelines to identify discrepancies early.
2. Keep Payroll Systems Up to Date
Ensure payroll software automatically applies the correct SG rate each financial year. Work with your provider to confirm updates are in place before rate changes take effect.
3. Review Contractor Agreements
Assess whether any contractors meet the ‘deemed employee’ definition for super purposes. If they qualify, make sure they receive the required contributions.
4. Make Super Payments on Time
Super is due quarterly on 28 January, 28 April, 28 July, and 28 October. Consider paying super more frequently—such as monthly—to reduce compliance risks.
5. Adjust Payroll for Award or Agreement Changes
If your business operates under an enterprise agreement or modern award, check whether additional super entitlements apply beyond the legislated minimum.
6. Train Payroll and HR Teams
Ongoing education is crucial. Ensure payroll and HR staff stay informed about legislative updates and best practices for managing super compliance.
7. Monitor ATO Compliance Initiatives
The ATO is increasingly using data-matching technology to detect underpayments. Businesses should proactively review their payroll processes before receiving an audit notice.
Prioritising Compliance to Protect Your Business
Superannuation compliance isn’t just about payroll—it’s a fundamental employer responsibility. Underpayments can lead to financial penalties, legal scrutiny, and reputational harm. By auditing payroll processes, keeping up with legislative changes, and ensuring timely payments, businesses can avoid costly errors.
With further SG rate increases ahead, now is the time to review and strengthen compliance measures. Taking a proactive approach doesn’t just reduce risk—it also reinforces trust and confidence among employees, ensuring they receive their full entitlements.
