Daniel Butler, director of DBA Lawyers, told SMSF Adviser this could adversely affect many small- to medium-sized enterprises, especially those that pay weekly or fortnightly rather than being tested quarterly under the current superannuation guarantee (SG) regime.
Under the current regime, employers have 28 days after the end of each quarter to satisfy their SG obligations. Under PDS, employers will only have seven days from the date of payment of the salary or wages.
“Although the SG charge will be tax-deductible under the proposed PDS legislation, unlike the current SG charge, any penalties and interest after the ATO assesses the SG charge will not be deductible,” Butler said.
“For employers that pay wages weekly, for example, it could mean they clock up one penalty every seven days if they fall behind, which can add up to a substantial amount.”
Butler warned that under the proposed legislation, the director of a company may also be liable if the SG payments are late under the director penalty notice (DPN) regime.
The PDS measures propose to revise the SG charge shortfall, which is currently based on “salary and wages” and is broader than ordinary time earnings (OTE) as it covers overtime and certain other payments.
The key components of the proposed revised SG charge under PDS will be:
• Outstanding SG shortfall – calculated based on OTE (rather than total salary and wages under current legislation).
• Notional earnings – the SG shortfall will incur daily interest from the day after the due date calculated at the general interest charge (GIC) rate on a compounding basis which is currently 11.36 per cent for the September 2024 quarter (rather than 10 per cent under current legislation).
• Administrative uplift – calculated as an uplift of the SG shortfall component of up to 60 per cent, which can be reduced if a voluntary disclosure is made.
• GIC will accrue on any outstanding SG shortfall and notional earnings amounts, as well as any outstanding administrative uplift penalty that remains unpaid. GIC is not deductible from 1 July 2025.
• An additional penalty of up to 50 per cent of the outstanding SG will be charged where the SG charge has been assessed but is not paid in full within 28 days of the notice of assessment.
Butler continued that one of the other key complexities that appears still to be considered in the proposed PDS legislation is how it will apply to an employee compared with an independent contractor situation.
“Australia is one of the most complex countries in the world on this issue with different definitions depending on what legislation you are reviewing such as PAYG, SG, payroll tax and WorkCover insurance and the Fair Work Act 2009 (Cth),” he said.
“Hopefully, the design of PDS will give some relief for employers seeking to do the right thing but get tripped up on the complexity.”
He added that the extensive range of definitions and regimes for employee versus contractor is perennial and not easily addressed.
“There are still a lot of grey areas regarding this, and it would be nice to have greater certainty.”
“This issue will give rise to a lot of concern if a business is engaging labour and whether they have to provide super guarantee. PDS will put another layer of complexity in trying to figure out who’s who in the zoo.”
He said although there are many good reasons to implement the PDS, the penalty regime that will now apply is “over the top”.
“At the moment SG is paid quarterly, but when PDS comes into force, it will be every seven days and with the government also announcing it will be removing the small Business Clearing House system which allows employers with 19 or fewer employees to satisfy their SG contributions by paying this clearing house, ensuring SG is cleared and paid on time from 1 July 2026 could become even more complex.”
“Other electronic and financial payment systems can take one to five days for payments to clear, and on top of that there are things like cyber-scammers, computer problems, even staff giving the wrong tax file number. All of this will take time to sort out and if a business is one day late in that PDS being cleared, it will result in penalties.”
