how to set up a super for an employee
Super is money you pay for your workers to provide for their retirement. The employer must pay at least the super guarantee, which is currently (July 2018) 9.5% of the employee’s ordinary time earnings.
As an employer, you must pay contributions into a complying super fund or retirement savings account (RSA) and pass on your employee’s tax file number (TFN) to their super fund where you are required to do so. To meet your obligations there are three steps you must follow:
- identify your new eligible employees – whether an employee is eligible to choose their super fund generally depends on the type of award or industrial agreement that you employ them under (see ‘step 1’ below)
- provide a standard choice form to employees who are eligible to choose a super fund – the employee can use the form to choose a super fund or accept your nominated super fund
- act on your employee’s choice – arrange to pays upper contributions to your employee’s chosen fund. If they haven’t chosen a fund, begin paying super contributions for the employee into your nominated fund.
choice of fund
Depending on their award or industrial agreement, many employees can choose which super fund their superannuation contributions are paid into. Some federal and state public- sector employees are excluded from a choice of fund. For more information visit Fair Work Australia.
tips for managing choice of fund
If an employee is eligible to choose a super fund, you should provide them with a Standard choice form (NAT 13080) within 28 days from the day they start work for you.
Employees don’t have to complete the form if they don’t want to nominate a fund, but you must give them the choice. If an employee does not choose a fund, you must pay their superannuation contributions into your employer-nominated fund (also known as your default fund) within 28 days.
meeting the employer’s obligations
As an employer, you must follow three steps when a new employee starts working for you.
step one: identify whether your new employees are eligible to make a choice of fund
Not everyone is eligible to choose their super fund. It generally depends on the type of award or industrial agreement that you employ them under (see above).
When you employ new staff you need to check their eligibility. Your employee can generally choose their super fund if they are one of the following:
- employed under a federal award
- employed under a former state award, now known as a ‘notional agreement preserving state award’
- employed under another award or agreement that doesn’t require super support
- not employed under any state award or industrial agreement (including contractors paid principally for their labour)
Your employee may not be eligible to choose a super fund if:
- you pay super for them under a state industrial award; preserved state agreement; federal industrial agreement, such as an Australian workplace agreement (AWA); pre-reform AWA, pre-reform certified agreement, collective agreement; old industrial relations agreement, individual transitional employment agreement (ITEA); workplace determination; enterprise agreement (these are defined terms in Australian government industrial relations law)
- they are in a particular type of defined benefit fund or they have already reached a certain level in a defined benefit fund
Some federal and state public sector employees are also excluded from choosing their super fund.
If you are not sure what award or industrial agreement, if any, your employee is covered by, visit the Fair Work Ombudsman’s website or phone the workplace relations department in your state or territory.
step two: provide a Standard choice form to eligible new employees
If your new employee is eligible to choose their super fund, you should provide them with a Standard choice form (download NAT 13080 from ATO) within 28 days from the day they started working for you.
They are not required to complete the form if they don’t want to nominate a fund but you must give them the choice if they are eligible.
If your employee does not choose a fund, you must pay the super contributions for that employee into the fund you have identified as your employer-nominated fund (from ATO’s website and known as your default fund).
You also have to provide a Standard choice form within 28 days if any of the following applies:
- an existing eligible employee asks you for a form
- you are unable to contribute to an employee’s chosen fund, or it is no longer a complying fund
- you change your employer-nominated fund.
Make sure your employee is aware of the benefits of quoting their Tax File Number (TFN) on the standard choice form. It isn’t compulsory for an employee to provide their TFN to their super fund but if they don’t, the fund is liable to charge extra tax on the contributions you make for them and the fund will not be able to accept any of the employee’s personal contributions.
If your employee quotes their TFN on the form you must provide it to the fund they have chosen to receive super contributions.
step three: act on your employee’s choice
Until your employee provides a valid choice nomination, you must start paying super contributions to your employer-nominated fund by the relevant quarterly due dates. Once the employee has chosen a fund, you have up to two months to arrange for contributions to be paid into that fund. Your employer-nominated fund must offer a MySuper product and provide minimum life insurance for MySuper members.
If you don’t meet your obligations, including paying your employee super contributions to the correct fund, you may face penalties.
It’s helpful to provide employees with factual information about the process of choosing a super fund, your employer obligations in relation to choosing a fund, and how they nominate a particular super fund as their chosen fund.
However, unless you are licensed by Australian Securities and Investments Commission (ASIC) to provide financial advice, do not make recommendations about which super fund an employee should choose, the level of contributions they make, or whether an employee’s super should be consolidated. Employees looking for more information about how to compare and choose super funds can visit the ASIC’s Money Smart website.
more articles about: guide to superannuation
- employer obligations
- superannuation reforms
- how superannuation works
- should they stay or should they go?
- superannuation contribution changes
- compliance options
- changes to SMSF Levy
- super contributions caps
- how to set up a super for an employee
- how much to pay and when
- help for small businesses
- modern awards
- insurance requirements
- salary sacrifice
- boosting employee super
- superannuation guarantee age limit
- records you need to keep
- the importance of communication