As you are aware, Superannuation contributions by employers will increase on 1 July 2021 from 9.5 percent of “Ordinary Time Earnings” (OTE) to 10 percent. This can be a little more complex to decipher than one would expect. The laws governing superannuation can be quite technical. This blog outlines some key considerations for you when reviewing your business’ superannuation arrangements.
Depending on whether an employee’s salary is expressed as inclusive or exclusive of superannuation will determine whether the employee’s take home pay is decreased or increased costs for the business – e.g. does the employment agreement say:
– ‘wage per hour/week/annum plus superannuation’ or
– ‘wagers per hour/week/annum including superannuation’.
If it is the first option, their wage does not change and, as the employer, you pay the 10% superannuation applicable from 1 July.
However, if it is the second option, the employee’s wage will reduce by the amount that the superannuation increases – e.g.
- $80,000 package including superannuation at 9.5%, the wage is $73,059.36 and the superannuation is $6,940.64;
- $80,000 package including superannuation at 10%, the wage is $72,727.27 and the superannuation is $7,272.73;
You should carefully consider the entitlements owed to your employees and whether adjustments must or should be made; and then communicate any changes clearly to your employee.
It is important to get superannuation right because there is no statute of limitations on superannuation if you get it wrong…
When superannuation is underpaid, it is not a simple matter of making an additional payment to the employee’s super account.
If this happens in your business, you are required to pay the money to the ATO, together with an administration penalty (75 percent of the liability) and a penalty under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (Cth), which is up to 200 percent of the underpaid superannuation. As in other areas of regulation, self-reporting may reduce the penalty imposed.
The top 5 recommendations all employers should consider:
- Review worker entitlements to determine if wages are inclusive or exclusive of super;
- If workers are currently paid 9.5 percent super, it will need to increase to 10 percent;
- Have discussions with employees; particularly if the changes will impact their take-home pay;
- Whether there are any historical superannuation practices that need to be rectified;
- Whether employees should have addendums to their employment agreements/contracts to ensure compliance with legislation.
3 major queries Akyra is asked by clients in relation to Superannuation changes:
1. Is remuneration inclusive or exclusive of superannuation?
Superannuation is often framed as being in addition to wages – e.g. wages are $60,000 plus super. That means the wages are exclusive of superannuation.
The benefit of structuring wages as exclusive of superannuation is the ease of comparison of wage rates against award and/or enterprise agreement rates as those industrial instruments are always exclusive of superannuation.
Executives and professionals often have their wages expressed inclusive of superannuation – e.g. salary is $100,000 inclusive of super (i.e. $91,324.20 + $8,675.80 (9.5% superannuation). If your employees fall in this group of employees, their take-home pay will reduce on 1 July 2021.
It is not recommended you assume your business’ overall wage costs will consistently increase on 1 July 2021 when minimum superannuation contribution rate increases. It will depend how employment agreements / contracts have evolved over time. Now is a good time to review your employment documents to assess whether employees have their remuneration expressed as inclusive or exclusive of superannuation.
2. More super than the legal minimum may impact your employees;
Some employees receive more than the legal requirement for superannuation contribution, either because they salary sacrifice superannuation or their employment contracts say they are entitled to more superannuation than the minimum requirement which increased to 10 percent on 1 July 2021.
The 0.5 percent increase in the minimum superannuation contribution does not automatically mean that all superannuation contributions in your organisation must increase by 0.5 percent.
It is a good time to revisit your salary sacrifice and employment documentation to consider what the impact is, if any, of the increase in superannuation contributions.
3. A brief explanation of how to interrupt the Superannuation legislation for your business:
Superannuation is paid on “Ordinary Time Earnings”. This is a list of common payment types which the ATO has referred to in its key superannuation ruling SGR 2009/2:
From time to time, it can be difficult to determine whether a particular payment is subject to superannuation. When that happens, it can be helpful to consider the intent of the legislation.
Helpfully, the Full Court in Bluescope Steel v AWU said superannuation legislation aims to provide a simple and efficient way of securing a minimum level of superannuation for workers based on “self-assessment by employers and administration by employers and the Australian Tax Office”.
So… we need to apply a different lens to superannuation when we look at employment entitlements.
Superannuation legislation is not beneficial legislation (beneficial legislation like the Long Service Leave Act is interpreted so the benefit of the doubt goes automatically in favour of the employee).
Akyra’s key takeaways
- When difficult questions arise in relation to superannuation, it might even be appropriate to approach the ATO for an administratively binding advice and Akyra can assist with supporting you through this process.
- With the increase to the minimum superannuation contribution, it is worth making sure your superannuation arrangements comply with legislation. It pays to be proactive in this space, particularly as there is no statute of limitations.
NEED MORE INFORMATION?
Akyra can help your business to assist and support all your questions and concerns related to wage obligations. Please contact Akyra on 07 3204 8830 or book a free 30-minute consultation for an obligation-free conversation.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.