Superannuation Guarantee (SG) Explained

The Superannuation Guarantee (SG) is a government-mandated initiative that helps working Australians save for retirement. As an employer, you are required to make regular contributions to your employees’ complying super fund, with the goal of ensuring that all workers have a financial pool to draw from when they retire.

While it might seem complicated at first, it’s your obligation to make sure you understand how the super guarantee works, the current rates, and what you need to do as an employer. Our handy guide will explain all the most important details so you can manage your SG contributions without any headaches.

What is the Super Guarantee?

The Super Guarantee is a compulsory contribution made by employers to their employees’ retirement savings account — aka superannuation. Introduced way back in 1992, the SG is now a fundamental part of Australia’s retirement income system, making sure every employee receives fair contributions to their retirement savings.

Under the SG system, employers must pay a percentage of an employee’s earnings — known as ordinary time earnings OTE — into a superannuation fund. The fund accumulates over an employee’s working life and gives them a source of income when they retire.

As a small business owner, you are required to pay the SG for all eligible employees — it doesn’t matter whether they are full-time, part-time, or casual workers. While in the past you could get away with not paying super if a worker didn’t earn more than $450 in a calendar month, that is no longer the case.

SG contributions must be made at least quarterly and calculated as a percentage of the employee’s ordinary time earnings. The SG applies to all employees over 18 and, in some cases, to those under 18 who work more than 30 hours per week. Fail to comply with SG contributions at your peril, as you could be in line for several penalties.

What is the current super rate?

As of the 2024–25 financial year (1 July 2024), the current Superannuation Guarantee rate is 11.5% of an employee’s ordinary time earnings (OTE). This rate has been steadily rising in recent years, and it will increase again next financial year to 12% on 1 July 2025.

As an employer, it’s up to you to calculate the appropriate SG contributions based on this rate, as well as make sure the minimum amount of an eligible employee’s earnings is paid into their nominated super fund by the quarterly due dates:

● Q1 (1 July – 30 September): Due 28 October
● Q2 (1 October – 31 December): Due 28 January
● Q3 (1 January – 31 March): Due 28 April
● Q4 (1 April – 30 June): Due 28 July

Is there a maximum super contribution base?

Under the current Super Guarantee, there is a maximum super contribution base. While employers are required to pay Superannuation Guarantee contributions based on an employee’s ordinary hours of work, the SG concessional contributions are capped.

The maximum super contribution base for the 2024–25 financial year is $65,070 per quarter. So, if your employee earns more than this in a quarter, you aren’t required to make SG contributions on the excess. However, employees and employers can choose to make additional concessional contributions voluntarily, such as through a salary sacrifice arrangement or super contributions tax deductions (i.e. pay after-tax money into your super for tax benefits). Just bear in mind that these are all subject to concessional and non-concessional contribution caps.

How do ordinary time earnings affect superannuation guarantee contributions?

Ordinary time earnings (OTE) determine the amount of Super Guarantee contributions you’ll need to make. Ordinary hours of work generally include your employee’s regular earnings like wages, salaries, allowances, and bonuses but don’t include overtime payments.

How much super guarantee is paid will be calculated as a percentage of the OTE, meaning any increase or decrease in ordinary hours or work will change the amount of super you need to pay an employee. Just be sure to calculate the OTE accurately to ensure your SG contributions are correct, as underpayment penalties can apply.

Small business owners’ obligations for the SG

In addition to understanding things like the marginal tax rate, ensuring your staff have a complying super fund, and monitoring any treasury law amendments, you also have very clear obligations regarding the Super Guarantee.

Even if you only employ one person in your business, you are required to follow the latest SG regulations. From calculating the correct contributions based on their ordinary work hours to paying them into the correct super fund by the quarterly due dates, it pays to stay on top of this paperwork. Failure to meet your obligations can lead to hefty penalties and charges from the Australian Taxation Office (ATO).

Here are some tips to stay compliant:

● Small business owners must be aware of the current SG rate (11.5% for the 2024–25 financial year)
● Apply this rate correctly to each employee’s OTE.
● Keep accurate records of all payments and super contributions.
● Make sure the quarterly due dates make all payments.
● Using payroll software that is compliant with SG requirements to simplify the entire super process.
● Stay across your obligations regarding super for contractors. For example, if you hire contractors who are paid primarily for their labour, you may still be required to make SG contributions on their behalf.

What happens if you don’t pay your employees’ super guarantee on time?

As you can probably imagine, the ATO doesn’t take too kindly to business owners who fail to pay employees the superannuation contributions they are entitled to.

If super contributions aren’t made by the quarterly due dates, employers must lodge a Superannuation Guarantee Charge (SGC) statement with the Tax Office. The statement will include unpaid super contributions, interest, and an administration fee.

Moreover, late payments don’t count as tax-deductible, which can put you in an even more financially burdensome position than before.

The bottom line? Make sure you make your SG payments on time to avoid these penalties and stay compliant with current superannuation laws.

When is the super guarantee not required?

There are a few situations where you won’t be required to make super contributions, including:

● Employees under 18 working less than 30 hours per week
● Payments made for domestic or private work for less than 30 hours a week
● Non-resident employees working outside Australia
● Payments to foreign executives who hold certain visas

There may be other exceptions or new ones introduced in future, so stay on top of your obligations and speak to a tax or superannuation professional for more help.

Do I need the super guarantee if I’m self-employed?

If you’re self-employed, such as a sole trader or partner in a partnership, you aren’t legally required to pay the Superannuation Guarantee for yourself. That being said, it’s highly recommended that you continue to make voluntary super contributions to start building up your total superannuation balance for retirement.

Making regular contributions to your super fund can be a sound investment strategy for your long-term future. It’ll help you build a more comfortable retirement nest egg, similar to what regular employees receive through compulsory SG contributions.

Many self-employed workers choose to set up an automatic transfer every month that matches the current SG rate so they don’t miss out on being financially secure in their golden years.

Ultimately, the Australian Government set up the SG to help beef up the retirement savings accounts of everyday workers. As a business owner, it’s up to you to help give your eligible employees the future they deserve by paying them the appropriate amount of super every quarter. It’s good for you, it’s good for your business, and it’s good for your people.