Superannuation guarantee to increase, who bears the brunt?

The superannuation guarantee (SG) is the minimum percentage of a salary that an employer must contribute to an employee’s superannuation fund. The percentage is legislated and controlled by the Australian Taxation Office (ATO).

The current SG percentage is 9.5% of employees’ ordinary time earnings. From 1 July 2021, the SG will increase from 9.5 % to 10%. This is part of the transitional increases to gradually raise eligible superannuation to 12% by 1 July 2025. 

Employers will need to increase the minimum superannuation contribution to eligible employee’s ordinary time earnings from 9.5% to 10%. Depending on the terms of your employment arrangement, it may result in the employee’s take home pay decreasing or the employer’s costs increasing.

1 July is just around the corner – employers need to think ahead and consider:

  • reviewing employee agreements to determine if remunerations are inclusive or exclusive of superannuation and make necessary adjustments;
  • notifying employees of the increase in superannuation, particularly if the changes are likely to impact their take home pay. Some employees may need to review their salary sacrifice or after-tax contributions arrangements;
  • ensuring that the payroll software has incorporated the rate change;
  • budgeting for the future financial years to understand future employee costs resulting from any increase in superannuation payable.

Is remuneration inclusive or exclusive of superannuation?

If an employee’s annualised salary is expressed as inclusive, that employee’s wages include superannuation which means their take home pay will reduce on 1 July 2021. If an employee’s annualised salary is exclusive of superannuation, the employer will bear the costs of the increase and the employee’s take home pay remains unchanged.

The wages of employees covered by a modern award are exclusive of superannuation. This means that their wages will remain unchanged, and the employer will incur the additional costs of the 0.5% increase in superannuation.

Employers should review their employment agreements to assess whether employees have their remuneration expressed as inclusive or exclusive of superannuation.

Above the SG prescribed amount?

Some employees receive more than the prescribed SG from their employer, for example, as a result of an agreed term under an employment agreement. For these employees, the 0.5% increase in superannuation may not affect them – it ultimately depends on the wording of the contract. Employers with such arrangements should review their employment agreements to assess whether employees’ superannuation must increase.

Get it right

It’s important that employers pay their employees the minimum prescribed SG because there is no statute of limitations on superannuation offences. There are significant charges and penalties imposed by the ATO for employers that underpay superannuation and a penalty under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (Cth) of up to 200% of the underpaid superannuation amount.

If you require assistance with reviewing employment agreements or understanding your employment law obligations talk to us, we’re here to help. Our business is protecting yours.