The Superannuation Guarantee is a compulsory form of Superannuation where employers must make regular contributions to their employees’ superannuation fund.
The scheme came into effect in 1992 and is designed to help provide an income to Australian employees when they retire either in whole or to supplement the Age Pension.
What is changing?
The amount that employers need to contribute is increasing from 1 July 2021 from the current 9.5% to 10% of ordinary time earnings (OTE).
This amount is legislated to increase by .5% on 1 July each year to reach 12% by 2025.
What do employers need to do now?
Employers will need to review their agreements and contracts with their employees to assess the impact of this increase.
For most employees where Superannuation is paid on top of wages, then most good STP payroll systems will automatically adjust to include the additional 0.5% of OTEs in calculating superannuation contributions. There is no impact on employee take-home pay, as this is purely additional Superannuation paid by the employer.
If your employment contract with your employee states a wage rate plus 9.5% super, you are required to increase this amount to 10% without affecting the employee’s base rate.
You may also want to adjust your employment contract to reflect the wage rate plus the Superannuation Guarantee minimum rate so as not to have to keep changing your contract each year.
What about employees on fixed total salary packages?
Where employees are on a fixed total package, inclusive of Superannuation, then you can legally continue to pay that fixed amount by reducing the employee’s take-home pay by 0.5%, rising to a take-home pay reduction of 2.5% in 2025.
However, you need to ensure that the new overall salary package does not drop below the minimum award and national employment standards as a result.
You are also likely to create some employee motivation, productivity and turnover issues resulting from decreasing their take-home pay.
Even though legally you will be within your rights to do this, it is not a path that we would recommend heading down unless your business is in financial distress.
Check with the ATO to ensure you are meeting your Superannuation Guarantee Obligations as there are hefty penalties if you miss payments or don’t pay your employees’ superannuation contributions correctly.
If you are not sure if an employee is eligible under the Superannuation Guarantee Scheme, you can use the ATO’s online SG eligibility decision tool to help.
Also, check with your accountant and bookkeeper to ensure your payroll system is adjusted in readiness for the new Superannuation Guarantee amounts.