Super Guarantee Rate is Set to Rise from July – Are You Prepared?

The superannuation guarantee statutory rate has remained at 9.5% since July 2014. However, plans have been in place for some years now to increase the rate to 12% incrementally.

In July 2021, the rate will rise to 10%. From then on the rate will increase by 0.5% each year until July 2025 when it will reach the legislated 12%.

Prior to the delayed 2020 federal budget there was discussion about the possibility of deferring the rate rise because of COVID-19. However, the rate rise had been postponed from 2018 to 2021, so the plans to start increasing the rate each year remain in place – at least for now.

Prepare Now for the July Rate Rise

  • Review your current superannuation costs for all employees, both hourly and salaried.
  • Review any salary packaging arrangements. Is the agreement inclusive of superannuation or is super paid on top of the agreed salary?
  • For salary packages inclusive of super, you will need to check the contract’s wording to make sure you apply the changes correctly. This change may also impact annualised salary arrangements.
  • Calculate your revised payroll costs from July, showing the current wages and superannuation expense compared to the new rate from July 2021. Highlight the increased amount per month or quarter, so you know precisely what the impact will be.
  • Discuss the super rate increase with your employees now. Let them know that this is the first year since 2014 that the rate has risen and that unless the law changes, there will be an increase of 0.5% each year from now until July 2025 when the statutory rate will reach 12%.
  • Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July, so you don’t get caught short.

If you’d like help reviewing payroll costs and employee agreements, talk to us now, and we’ll make sure you have accurate reports to make planning for the rate rise easy. Getting organised now means that you’ll be well prepared for your business’s increased costs when the first payment is due later this year.

New Rules for Salary Sacrificing Super

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.

What’s Changed?

  1. 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.

  2. 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.

What is the Superannuation Amnesty?

superannuation amnesty

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.

SBSCH to join the ATO Online Services

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.

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