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De-Mystifying Superannuation Contributions and Bonus Structures

Every good employer knows that rewarding your employees properly is the best investment in your company’s future you can make. (Maybe tying for importance with the correct business structure!)

With a competitive salary as the base, the Superannuation program intends to provide all workers with resources in their retirement through a cooperative funding between their employers over the years and their own personal contributions.

Bonuses paid out as part of an overall motivational compensation structure or as a reward for a particular service can be a fantastic tool for motivating and rewarding employees as well. Unfortunately, for many employers bonuses in relation to Superannuation Contributions is a confusing and intimidating field.

One unfortunate result of this confusion is fewer employers offering their employees bonuses of any kind. But the bonus is one of the most powerful tools we have to recognize and reward the people who make our businesses hum. Here’s our fast guide to superannuation contributions and bonus structures.

Superannuation Guarantee

We all know that superannuation is based on the employee’s ordinary time hours – that is, their usual set work time. In the case of a bonus, the first question to answer is whether or not the bonus should be considered part of these ‛regular’ hours:

If the bonus is a reward for achievements during an employee’s ordinary time hours, then the bonus sum incurs the usual superannuation guarantee requirements. This is the case for the majority of bonus payments made to employees under a salary agreement.

However, if the bonus is linked to a specific project or performance that is wholly outside of the employee’s ordinary hours, then Superannuation Guarantee payments are not necessary.

For example, if the employee takes it upon themselves to develop an internal program without direction from management and this is deemed an extraordinary effort that deserves a bonus as reward, these monies would not be counted as part of the company’s superannuation contribution burden.

Contribution Base

Business owners should also keep in mind that bonuses paid out do not necessarily affect the contribution base for superannuation contributions.

For example, in the 2013/2014 financial year, the base is $48,040 per quarter. Thus, any compensation package for an employee (which includes all bonuses and salaries as separate from ‛special’ bonuses discussed above) that exceeds an average of $48,040 per quarter hits the ceiling on contributions and thus the company does not have to pay more in superannuation contributions no matter how far the employee’s overall compensation exceeds the base.

What does it mean?

In the end, the benefits of motivating employees with bonus payouts far exceed the difficulties these bonuses cause in terms of tax and superannuation contributions.

The procedures and equations are not terribly difficult once the basic concepts have been mastered, and the company that offers a generous bonus structure in addition to a competitive base salary will of course attract the best talent in their field.

But everyone needs a little help now and then, and if you’re confused about superannuation and bonus issues, feel free to sign out and we can explain everything in clear language.

Looking for more? Here's some resources from the ATO:

http://law.ato.gov.au/atolaw/view.htm?docid=SGR/SGR20092/NAT/ATO/00001

http://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=21#Maximum_super_contribution_base