The superannuation guarantee rate is slated to increase from the current rate of 9.5% up to 12% by 2025, with the first increase in some seven years set as 0.5 percentage points and coming into effect in 2021.
From 1 July 2021, employers will need to adjust their employee’s superannuation to the rate of 10% of their salary or wage and do so on time. Otherwise, they risk paying a superannuation guarantee charge, interest and penalties as well as missing out on a deduction.
See below for how these changes will affect employers and employees.
What the super guarantee changes mean for employers
Employers would be forgiven for thinking they just need to pay an extra 0.5 percentage point into their employees’ super funds. The fact of the matter is, the way this extra super is paid is determined by the employment contract you should have in place with all employees. In short, there are two scenarios, one where employees are paid a “salary package” and another where they are paid a wage “plus super”.
Why does the distinction between the two matter?
- Employees paid a “salary package” including super will have more funds directed to super and less into their wage. For example, if you employ someone on an annual salary package currently of $80,000, this salary package would consist of the following:
- An annual wage of $73,059
- Superannuation at 9.5% of the salary component, being $6,941
- This gives the total package amount of $80,000
- This same employee with the super guarantee changes, assuming no other pay rise or change happens before 1 July 2021, is still paid $80,000 although the components will change under the legislated superannuation increase as follows:
- The annual wage decreases to $72,727
- Superannuation at 10% of the salary component increases to $7,273.
- This means the salary package is maintained at $80,000.
- Employees paid a wage plus super stand to gain the additional superannuation component, albeit paid into their super fund as opposed to into their bank account.
- This employee’s contract will state they are paid, for example, $80,000 plus superannuation. Currently they are receiving $7,600 into their super fund over the course of the year; from 1 July 2021 they will be paid $8,000 into super.
The most important factor for employers to consider is therefore the contract or employment agreements they have in place with their employees. This will determine the correct way to account for this change in super legislation. If you need a contract created or updated, you should speak to a lawyer. The medical specialist lawyers at Fletcher Clarendon will be able to help with that.
The next consideration for employers will be their software and reporting the correct superannuation component via Single Touch Payroll (STP).
As always, ensure you continue to pay your superannuation by the 28th day of the month following each quarter, as follows:
|Quarter||SG payment due date|
|July to September||28 October|
|October to December||28 January|
|January to March||28 April|
|April to June||28 July|
What the super guarantee changes mean for employees
The good news for employees who are employed based on an hourly rate or salary plus super is that their take home pay will not be affected by this change. The superannuation of 10% should be paid on top of your earnings. This means more money into your super fund while your wage is unchanged.
One thing to be mindful of is how this may affect the amount of concessional (pre-tax) contribution cap that you have, being $25,000 each year. If this increase tips you over the cap, after using up any brought-forward unused cap amounts, you may be liable for excess contributions tax upon lodgement of your tax return.
If you exceed the before-tax (concessional) super contributions cap, the excess is included in your income tax return and taxed at your marginal tax rate. You can choose to withdraw some of the excess contributions to pay the additional tax but should seek advice from a financial adviser or private wealth professional before taking any steps. If an employee is paid a salary package including superannuation, you will notice that your take-home pay decreases while the amount paid into your super fund increases (the example above helps to explain this).
If you have any questions about the upcoming super guarantee rate increase or what impact it might have on you, book a no-obligation initial consultant here with a DPM Tax Consultant.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice as your personal circumstances have not been considered. DPM Financial Services Group recommends you obtain personal advice concerning specific matters before making a decision.
Anthony Pane is a tax consultant at DPM Financial Services. He looks after doctors at various stages of their career with a customer-centric approach.