From 1 July 2021 the superannuation guarantee (SG) is set to increase to 10% from the current rate of 9.5%. This has quietly snuck up as an issue for businesses and employers who don’t have long now to prepare for the change. Whilst the legislated increases have been in place for some time, there was a long held expectation that the first increase to 10% this July would be frozen once again. That hasn’t occurred and now employers must prepare for the new superannuation guarantee rate.
The Superannuation guarantee (SG) is legislated to increase as follows:
| Year | SG Rate |
|---|---|
| 1 July 2020 to 30 June 2021 | 9.5% |
| 1 July 2021 to 30 June 2022 | 10% |
| 1 July 2022 to 30 June 2023 | 10.5% |
| 1 July 2023 to 30 June 2024 | 11% |
| 1 July 2024 to 30 June 2025 | 11.5% |
| 1 July 2025 to 30 June 2026 and onwards | 12% |
The Retirement Income Review completed in 2020 (which looked broadly at the effectiveness of the Australian retirement system) looked into the issue of SG increasing and whether the legislated increases should go ahead. One of the main things the review noted was that increasing the SG gradually from 9.5% to 12% in the current climate would at least partially be paid for by lower wages and salary rises, during a period of already stagnant wage growth.
Plenty of debate between the political parties followed and views put forward by the big industry funds. After many months of contemplating the issue, the Federal government just before the May Budget decided against making any adjustments to the increases.
Now that we know these increases are going ahead, it’s really important for businesses and employers to start preparing now for the change.
In preparation for the change, there are a series of important considerations and reviews that should be undertaken. Consider the following:
- Employment contracts should be reviewed – are employees salaries recorded as a package including super or as salary plus super? Will the employer incur the extra 0.5% SG or will the employee absorb this with lower take home pay? Could you consider timing or bringing forward any scheduled salary increases to 1 July 2021 to assist employees who will get lower take home pay because of the SG increase? Do you need to check and refer to any Awards or Workplace Agreements?
- For any changes and decisions that are made on this by employers – they should be clearly communicated with staff. Employers should be transparent and prepared to have discussions where necessary.
- Are your payroll systems ready for this change from 1 July 2021? It’s a good opportunity to review whether you have all the appropriate details for each employee and their super fund in your payroll.
Here are some important points to note regarding the Superannuation Guarantee:
- The SG is payable to employees who get paid $450 or more per month (before tax). The May Budget announced a change to remove this threshold, which is expected to apply from 1 July 2022. From that date there will be no threshold on when SG applies to employees.
- SG is based on an employee’s “ordinary times earnings” (overtime pay for example is not included) and is due 28 days after the end of each quarter.
- If payment is not made by this date, then the employer must pay Superannuation Guarantee Charge, which is essentially a penalty for late payment. Crucially, the base for SG charge is broader than ordinary times earnings, which can further increase the employer’s payment for being late.
- For the year commencing 1 July 2021, the maximum super contributions base will increase to $58,920 per financial quarter or $235,680 per year (which equates to maximum required superannuation contributions of $5,892 per quarter or $23,568 per year). This means the employer is not necessarily obligated to pay SG to employees on the portion of their salary above the maximum amount of $235,680 per year. Ultimately though it will be dependant on the employment contract and the terms agreed on between employer and employee.
- Salary sacrificed contributions do not count towards the SG. The 10% needs to be based on an employee’s ordinary times earnings before any salary sacrifice superannuation amounts are deducted.
- From 1 July 2021, the annual concessional contributions cap will rise to $27,500 (is currently $25,000 for 30 June 2021). This could be relevant for employees in considering their salary packaging arrangements going forward. It could also be useful for employees who receive superannuation on salary in excess of the maximum super contributions base.
It is the employer’s obligation to ensure employees are not underpaid their SG entitlement, otherwise you risk your business being subject to penalties under the SG Charge mentioned above. The ATO has not indicated that it will give any leniency or grace period to employers who don’t meet this new SG obligation
Note: there is new choice of fund legislation before parliament relevant for new employees commencing on or after 1 July 2021. Under the new rule, contributions for these employees will be required to be made to their existing superannuation account (employee does not necessarily need to nominate fund of choice).
