Directors personally liable for employee Super

Directors are now personally liable for unpaid superannuation guarantee (SG) payments to staff. While initially designed to prevent phoenix company activity, the new laws that apply from 1 July 2012, extend well beyond phoenix company activity.

How does it work?
The new law extends the director penalty and estimates regime beyond PAYG withholding to the super guarantee (SG) charge. That means that if a company fails to remit SG to the employee’s funds on time, the Directors can be personally liable for the payment.

A director penalty is triggered when a company’s liability for PAYG withholding or SG remains unpaid and unreported 3 months after the due date. The Tax Commissioner will then issue a Director penalty notice to either the Director or their tax agent. The director penalty applies even if the company is placed into administration.

Be careful if you use contractors
If your company uses contractors, ensuring that your contractors meet the definition of an ‘independent contractor’ is more important than ever. Remember that where a contract is principally for labour, that person might be treated as an employee and in those circumstances, superannuation guarantee will be payable regardless of what your agreements call the relationship. The director penalty regime will extend to SG payments for employees misclassified as contractors. The only out is if it was reasonably arguable that the company took reasonable care in applying the law – however, naivety is not an excuse under the law.