The superannuation guarantee is the percentage an employer pays into an employer’s super fund, with the percentage currently set at 9.5%. This will increase to 10% as of 1 July 2021, with further increases of 0.5% per year to come from 1 July 2022, until it reaches 12% from 1 July 2025 onwards.
Accordingly, from 1 July 2021 not only will employers need to update their payroll settings to reflect the increase in rate but also consider the increased costs of this change and the upcoming increases over the next few years.
The financial impact of the 0.5% increase in the SG rate will depend on the terms of existing and new salary and wage packages.
The effect of the increase on particular salary packages needs to be carefully considered to determine whether the additional 0.5% SG contribution needs to be added on top of the existing salary package (i.e. no change to the employee’s take home pay) or incorporated into the existing salary package amount (i.e. resulting in a reduction of the employee’s take home pay). In addition, employers will need to consider the effect of the increase in the SG rate on relevant employee awards.
The 0.5% increase cannot be accounted for using an employee’s salary sacrifice contributions. It is also imperative to take into account that the ordinary time earnings (OTE) base for Superannuation Guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement are not treated as employer contributions which reduce an employer’s charge percentage.
Due to the increase the maximum super contribution base will also be increasing to AUD 235,680 per annum from AUD 228,360 per annum. The opt out income threshold will also be increasing to AUD 275,000, from AUD 263,157 allowing high income earners with multiple jobs to opt out of the scheme so the employer doesn’t reach the concessional contributions cap.
The annual concessional contributions cap is also taking an increase from the 1 July to AUD 27,500 from AUD 25,000. Any contributions made beyond this amount may attract a higher tax rate and an excess contributions charge.
Any questions, please do reach out to your BDO contact.
Ben Renshaw
ben.renshaw@bdo.com.au