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  • Contributions under an individual employment contract

    If you have an employee on an individual employment contract, and you make employer contributions that are greater than the minimum required to meet your obligations, the employee will generally be considered to have the capacity to influence the amounts contributed.

    The extra contributions are reportable employee super contributions unless you can show that:

    • the extra contributions are made for administrative simplicity
    • a documented policy is in place that does not allow an employee to influence the contributions you make on their behalf.

    Example: Extra contributions

    Adnan is an employee of Johnson Pty Ltd. While negotiating his individual common law employment contract, Johnson Pty Ltd agrees to pay super contributions for Adnan at the rate of 12% of his salary.

    Johnson Pty Ltd has no policy regarding the employer contributions it pays for its employees. It allows employees to negotiate any rate of employer contribution they wish in excess of the 9.5% required by super guarantee law. Adnan and the other employees of Johnson Pty Ltd have contributions made on their behalf at varying rates.

    Johnson Pty Ltd must record the extra contributions made for Adnan as reportable employer super contributions. Adnan's ordinary time earnings are the same as his salary, so the amount recorded is 2.5% of Adnan's salary – that is, the amount that is additional to the minimum contributions Johnson Pty Ltd must make under super guarantee law.

    End of example

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    Working out compulsory contributions when there is no defined salary

    Some employees, for example commission-based sales staff, may not have a defined salary. You may make one payment for the total amount of super you contribute that incorporates extra super contributions. This means you'll need to calculate what portion of the total employer contribution is a reportable employer super contribution.

    Example: No defined salary

    Rob operates a real estate business and hires Marcus. Marcus is unsure of how much he will make in any given year, but he wants to save more than the minimum for his retirement. He requests that 20% of his commission earnings be paid to a super fund on his behalf under an effective salary sacrifice agreement.

    Rob pays Marcus monthly in this way:

    • 20% of his commission earnings are sent to his super fund
    • 80% are paid to him, less pay as you go (PAYG) withholding tax.

    At the end of the income year, Marcus's sales commissions total $100,000. Rob has made employer super contributions totalling $20,000 and has paid Marcus $80,000 (less PAYG withholding).

    Rob will need to determine which part of the super contribution Marcus influences so he can report this amount as Marcus's reportable employer super contributions.

    To calculate this, Rob goes through the following steps:

    Step 1

    Marcus' ordinary time earnings are reduced from $100,000 to $80,000 as a result of the salary sacrifice:

    $100,000 $20,000 = $80,000

    The minimum amount Rob needs to contribute for Marcus in order to meet his obligations under super guarantee law is:

    $80,000 × 9.5% = $7,600

    Step 2

    Rob then subtracts the $7,600 from the total employer super contributions actually made:

    $20,000 $7,600 = $12,400

    Step 3

    On Marcus's payment summary, Rob will report the extra $12,400 as reportable employer super contributions, and the $80,000 as gross payments.

    Rob's payroll system calculates salary and super guarantee contributions in this way for all employees. He will keep records of how he calculated the reportable employer super contributions.

    End of example
      Last modified: 29 Oct 2019QC 21716