Getting set for 2021 superannuation rises

Overview:

As most employers would be aware, the Federal Government has legislated an 0.5% increase to the Compulsory Super Guarantee from July 1 this year. With further increases slated over the next five years, it is important to understand the impacts of these changes of employee remuneration while also having a plan in place to implement and communicate these increases across your workforce.

After much debate and speculation, the 2021 Federal Budget, which was released last month, confirmed that planned changes to the employee Compulsory Superannuation Guarantee would proceed from 1 July 2021, with the implementation of an initial 0.5% increase to the Superannuation Guarantee rate.

While this marks the first change to Superannuation Guarantee rates since 2014, it is just the first of series planned increases that will see the minimum rate rise to 12% by 1 July 2025. It is important to note that these increases are statutory changes and compliance is therefore mandatory, although how you meet your ongoing obligations under the legislation will depend on what type of contractual arrangements are in place with your employees.

How these changes will impact different employee contracts

• Remuneration packages that include superannuation – for those employees contracted under superannuation inclusive salary packages, you need to decide if the package is to remain the same, thereby decreasing employee’s take home pay, or increase their package by the 0.5% increase in superannuation.
• Remuneration packages exclusive of superannuation – in such circumstances, employers will have to pay the Superannuation Guarantee increase on top of the current salary, meaning that the cost of employing staff under such arrangements will increase by 0.5% from July 1.
• Employees remunerated under an Award – Individuals employed under an Award cannot be paid less than the minimum Award rate and the increase in the Superannuation Guarantee rate to 10% will require employers to increase their superannuation contribution to this rate. In circumstances where an employee is paid above the minimum or Award rate, that employee could have their take-home pay reduced to account for the 0.5% increase to the Superannuation Guarantee rate. However, it is important to seek advice in these circumstances as these situations may well be subject to specific employee agreements or industrial conditions.
• Salary sacrifice – salary sacrifice cannot be used to meet Superannuation Guarantee obligations.

Planning for the changes

As these changes coming into effect, it will be critical to effectively communicate the impacts to your employees. For those employers with staff remunerated under superannuation-inclusive salary packages, this will be particularly important as these employees could – depending on your plans – see a reduction in their take-home pay from July 1.

Another important note that came out of the 2021 Federal Budget is the planned removal of minimum earning threshold below which and employer is not required to pay super. As it currently stands, employers are only required to make Superannuation Guarantee contributions for employees that earn more than $450 per month (before tax), regardless of employment status. However, from July 1 next year, this threshold will be removed, meaning that all employees will be eligible to receive superannuation contributions.

Perks Bookeeping Director Elizabeth Elliot says its also important to consider what cash flow impacts these changes will have on your business.

“Although it will depend on how your individual employment contracts are structured, most businesses are going to see an increase to their cost of employment from July 1, which will also potentially increase other on-costs such as payroll tax and workcover”, Elizabeth says.

“It’s also important to note that that these changes aren’t a one-off, highlighting the need to be prepared. Every July 1 from now until 2025 is going to see another 0.5% rise to your employment costs, so it’s important to start planning now for these future impacts on your cash flow.”

Maintaining compliance

Remaining compliant with your obligations as Superannuation Guarantee rate increase take effect will be a key consideration for all employers moving forward.

Recent incidences of employee underpayments have heightened scrutiny on organisations of all sizes and oversights, whether intentional or not, could cost your company in the form of repayments or penalties.

As Perks People Solutions Director Cecilia White points out, this highlights the need for business owners to be up to speed with the changes and take action now to ensure ongoing compliance with superannuation legislation.

“For employers, these changes will throw up a whole range of questions, ranging from payroll software, to employment contracts and how you structure employee remuneration moving forward,” she says.

“As a start point, it’s worth reviewing current contracts and processes to ensure you are right across how pay and super contributions are calculated for each employee and any relevant Award or industrial conditions that may apply.

“It is also an opportunity to take stock of your businesses’ overall compliance with payroll, which can be as simple as starting with a payroll audit to ensure you are paying your employees the right wages according to their Award classification or an audit to ascertain what you are paying is keeping up with the market rates, which is something the team at Perks People Solutions have the expertise to assist with.”