What it means for your business
Crazy as it might feel, FY 2019 is almost over. And as we get closer and closer to June 30, it’s time to start dotting your I’s and crossing your t’s in preparation. That’s sorting your outstanding debtors, tidying up your accounts payable, reviewing your records and of course, getting your employee’s super in order.
Currently, mandatory employer super contributions sit at 9.5%, however, recent changes to legislation means that figure is slated to increase over the next 6 years. 2021 will see that number rise to 10% before gradually increasing to the planned 12% by 2025. The increase is said to account for the country’s increased standard of living, or at least the expected standard of living. The current information coming out of the Organisation for Economic Co-operation and Development (OECD) is that most Australians expect to retire on around 70% of their yearly working income. That’s no meagre sum and the changes to super are theoretically in place to make it a more attainable goal.
What does that mean for you as a business owner?
It all depends on how you pay your people. If your contracts stipulate that you pay base-pay plus super, then the cost to your business is going to increase along as the super percentage rises. This is because your employees pay is separate from the super contribution that you make on their behalf. You are obligated to pay them the same rate as before and bear the cost of the increase yourself.
On the other hand, if your contracts describe a total remuneration model of payment, things are different. Because your employees super and salary are tied together and capped at the amount you have agreed to pay under the contract, your costs will not increase. Sounds great, right? It maybe for you, but your employees will take a hit to their take home salary equal to the percentage increase. Depending on their financial circumstances, sacrificing their current pay for a future pay off isn’t always an option for those who are depending on their next pay to support themselves or their families.
So what do you do?
If you’re on or thinking of moving towards the total remuneration payment model keep in mind what that will mean for your relationship with your employees. Talk to them and be honest. If two years from now they suddenly find the paycheque they’re relying on dropped, even by a little bit, with little to no discussion, you’re likely to start losing people. Be proactive and keep up your end by communicating the changes that are coming. Have the conversation as soon as you know what you want to do, but also make sure to remind people closer to the change date so nobody gets a surprise come 2021. The increase is not something you concocted or had any say over and you don’t have to apologise for it, but your people need to know that you are paying attention to the changes and factoring them into what that means for their livelihoods and the success of your business overall. After all, if your business goes backwards, that might ultimately cost everyone their job.
Now you might be thinking, it’s only 0.5% and it’s in two years time – that’s plenty of time. We all know how quickly time passes and how hard it can be to claw an extra half a per cent in profit – so best to start thinking about and planning for it now. Because really, it’s not just half a per cent in two years time, it’s a further half a per cent every year for the next five out of seven years.
Getting your super paid by cut-off date
Whilst you’re getting ready to adjust to the changes, make sure you don’t forget what you need to be doing right now, getting your employees super paid before the end of the financial year. To enable a tax deduction to be claimed, superannuation needs to be paid and cleared by the superannuation fund prior to 30 June. The ordinary cut-off date for the majority of superannuation funds is 28 days after the end of the quarter (so for the June quarter this is 28 July). Different super funds will have varying requirements on the frequency of payments but all of them must comply with the same quarterly cut-off dates (and that usually means that you’ll need to pay at least a couple of days prior to the final date to ensure all transactions are finalised prior to the cut-off date.
If you fail to have your super transactions finalised by 28 days after the end of the quarter, you lose your ability to claim a tax deduction on the amount AND you can wear significant fines (called the Super Guarantee Charge). So, please take this as your final warning.
One last thing to be across this financial year.
Just as an added thing to think about: if you run a small business (with 19 or less employees) you will need to by ready to run Single Touch Payroll (STP) as of July 1, 2019. This has been in the ATO works for a while now, but it’s taken a little longer than anticipated for changeover dates to finally apply. If you’re running Xero or MYOB, etc, chances are you already comply. But if you’re running an excel spreadsheet and paper timesheets, then now is the time to think about how you’ll manage this change. More information can be found here.
And that’s where we can help. If you’d like some assistance sorting your employees’ super contributions (before it’s too late), looking at how you can better manage your own tax liabilities, or setting up a single touch payroll system, we’d be delighted to help. You can call us on 02 6023 1700 or drop us a note via the form below.
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If you've got financial or business questions, or you just want to run something by us, we'd be delighted to really talk to you – in person, over the phone - call us on 02 6023 1700 - or you can use the form below and we'll get back to you.