Salary sacrificing to super allows an employee to forego part of their salary or wages and have the employer contribute this amount to their superannuation fund instead of paying it as cash. It reduces the taxable value of salary or wages, and is therefore beneficial to the employee in both reducing tax payable and increasing superannuation.
Up until now, employers were allowed to calculate superannuation guarantee contributions (SGC) on the reduced amount of salary or wages.
- From 1 January 2020, SGC must be calculated on the gross amount of salary or wages, before any salary sacrifice amount is deducted.
This means employers will have a higher superannuation contribution to make for any employees who previously had their super guarantee amounts reduced because of sacrificing part of their salary to super.
Example: an employee is paid $100,000 per annum exclusive of SGC and sacrifices $20,000 to super. The employer currently pays SGC on the reduced salary of $80,000, being $7,600. From 1 January 2020, the employer must pay SGC on the gross salary of $100,000, which will be $9,500, an increase of $1,900 per year.
- The other big change with this rule is that salary sacrifice contributions will no longer contribute to the compulsory employer superannuation guarantee contributions. In some cases, employers were able to avoid paying any SGC, because the employee salary sacrificed an amount at least equal to the compulsory amount of employer contribution.
Because sacrificed amounts will no longer be counted towards employer contributions, if an employer has not fulfilled their super guarantee obligation and is required to lodge a super guarantee charge statement, the amount of super owing, (and any charges and penalties), will be calculated exclusive of any salary sacrifice amounts paid.
Example: an employee is paid $120,000 per annum exclusive of SGC and sacrifices $15,000 to super. The compulsory employer amount of 9.5% on $120,000 is $11,400. As the employee sacrifices more than this to super, the employer currently would have made no further contributions. Under the new rules, the employer must pay SGC on the gross salary, in addition to any salary sacrifice the employee makes. This means an increase of $11,400 per year.
Revise Employee Agreements and Remuneration Packages Now
We recommend that employers review all employee arrangements that include salary sacrifice to superannuation.
Employment agreements and remuneration packages may need to be revised to comply with the new rules so that it is clear that superannuation guarantee is calculated on the gross salary or wage before any amounts sacrificed.
We can assist with reviewing remuneration packages for your employees so you are not caught out by the new rules.
The Australian Government has announced its plans to allow employers with outstanding superannuation debts, a 12-month amnesty to pay overdue superannuation to their employees before penalties will be imposed.
It is reported that in 2014-15 alone, approximately $2.85 billion in Superannuation went unpaid.
To comply with the amnesty guidelines, employers must pay all of the superannuation that is owing to their employees, including nominal interest. The usual hefty penalties for late payment will not be applied during the amnesty period.
According the Australian Government’s announcement, employers that do not take advantage of the amnesty will face higher penalties when they are subsequently caught.
Throughout the amnesty period the ATO plans to continue its usual enforcement activity against employers who do not voluntarily disclose their historical obligations.
The SG Amnesty is a great opportunity for businesses to wipe their slate clean and for employees to be paid the entitlements that they are rightfully owed.
The amnesty is a draft law before parliament.
Click here to read the Australian Government’s announcement of SG Amnesty.
On February 26 2018, the Small Business Superannuation Clearing House (SBSCH) will join the ATO’s online services. This will streamline how you use the SBSCH and also include extra functionality, such as the ability to sort employee listings and payment by credit card. Businesses will be able to access the SBSCH within the Business Portal. For further information, click on the following link.