Making Contributions to Your Super
Whether you are an employer paying Super to your employees, or a client of a contractor who should receive Super, or you are a sole trader/self-employed and want to contribute for yourself, we’ve got you covered!
You might be a combination of all of these, and that is ok too! We artists love to wear many hats.
How to pay your employees their Super
As an employer you are legally obligated to pay Super for your employees - this contribution is called a Super Guarantee Contribution (SGC). Be sure to get your employees to fill in a Superannuation standard choice form (you can get a copy here) in order to collect their info, and then update your accounting program settings and employee details.
We recommend that once you are employing people to work for you that you set up Xero accounting software and run payroll through that. We can help you get it right from the start, and provide useful instruction manuals so you can do your own bookkeeping.
Here are employer’s Super obligations:
- Paying the correct amount of Superannuation to their staff.
- Choosing a Super fund to pay your employees' Super contributions
- Pay and report electronically
- Paying on time
- Record keeping
When you process a pay run, your software will automatically (hopefully) record the Superannuation Expense (a deduction for your business) and the Super Liability (being the amount you owe to the Super fund/s). You can see your liability at any time on your Balance Sheet. It should automatically calculate it correctly (10% on top) but it is always good to check it.
You usually need to make payments every quarter at the very least. I recommend doing it monthly so you don’t forget or risk not having the funds available when it is legally due. Other people I know process it every time they do a pay run! To process it in Xero, make sure you have the right subscription level, and have set up the Auto Super settings. Then go to Payroll > Super and follow the prompts. The payment will later be direct debited from your nominated account. When you see the bank transaction be sure to code it to the same Super Liability account (the payment will reduce the Liability down).
How do you add a regulated Super fund in Xero?
- Click on the organisation name, select Settings, then click Payroll settings.
- Select the Superannuation tab.
- Click Add Superannuation Fund.
- Under Name, start typing the fund name or USI then select from the list of funds.
- (Optional) Enter the Employer Number.
- Click Add.
How do you add a self-managed Super fund?
- Click on the organisation name, select Settings, then click Payroll settings.
- Select the Superannuation tab.
- Click Add Superannuation Fund.
- Under Type, select Self Managed Super Fund.
- Enter the name of the fund and its ABN.
- Enter the Electronic Service Address Alias. It can be up to 16 alphanumeric characters.
- (Optional) Enter the Employer Number.
- Enter the fund's bank account details, then click Add.
Did you know that you might need to be paying Super to some of your contractors too? (yes, even though they invoice you and they are not employed by you).
Super for Contractors
If employers/ clients pay contractors primarily for their labor, they are considered employees for the purposes of Superannuation guarantee (SG), and you may be required to pay Super to a fund on their behalf. Read the ATOs guidance on this here.
You should make the payments directly to the contractor’s chosen Super fund - not to the contractor for them to then contribute. How much Super do you pay? At a minimum you need to pay the Super guarantee percentage (currently 10%) of the worker's ordinary time earnings (what they charge on the invoice for their labor component of the work).
How to make your own contributions as a sole trader
You don't have to pay the same ‘Super Guarantee’ that employers legally have to if you're self-employed as a sole trader or in a partnership but you might like to make personal Super contributions. Read more about the different types of Super contributions in our blog here.
If you want to make concessional contributions and claim a deduction for those in your tax return, you need to fill in this notice of intent to claim form, give it to your Superfund and save a copy for your accountant, and the money needs to be in your super account before 30 June.
You can chat to your Superfund about how to actually make the payment, but usually it works just like a normal bank transfer. You might do it as a recurring transfer or as a lump sum.
How much you contribute is ultimately up to you, but keep the contribution caps in mind, and maybe chat to an advisor too. If you contribute $10,000 yourself, and do the forms, you could potentially get a deduction of $10,000. Check out the eligibility criteria for claiming a deduction for contributions here. Deductions in your tax return reduce your taxable income and therefore reduce the ultimate tax bill.
HOT TIP: ensure that your Superfund has your tax file number (TFN) for smooth sailing.
If not, then:
- contributions are taxed an additional 34%
- your fund would not be able to receive donations from individuals.
- If eligible, you may miss out on a super co-contribution
- it will be harder to keep track of your Super.
Even if you are employed by someone else as well, the above information might still be useful to you if you want to make some extra concessional contributions (and potentially get some extra tax deductions for doing so).
Of course you don’t have to claim a deduction if you don’t want to (or maybe if you want to co-contribution) - in these cases you don’t fill in the notice of intent to claim for because you have no intention of claiming a deduction for your personal contributions. In this situation the contributions are non-concessional.
Remember: if you are a sole trader charging clients for your labour then they might be obligated to make contributions to your fund on your behalf too! Read this and do the quiz to find out!
You might also like our Superannuation Video covering everything you need to know, in heaps of depth.
