Superannuation guarantee has been an area of increasing focus and attention by the Federal Government and the Australian Taxation Office (ATO) particularly centred on notions of wage and superannuation theft by employers.
Whilst some announcements were made in the recent Federal Budget, there are a number of upcoming changes and developments in relation to superannuation guarantee that all employers should be aware of to ensure they continue to meet their obligations.
Superannuation guarantee rate to rise to 10%
With effect from 1 July 2021, the superannuation guarantee rate will rise to 10%. As a consequence, employers must pay a minimum of 10% superannuation on an employee’s ordinary time earnings in each quarter. The amount contributed cannot include any employee salary sacrifice contributions and must be based on an employee’s ordinary time earnings before any salary sacrifice superannuation amounts are deducted.
The superannuation guarantee rate is legislated to continue to increase as follows:
Period |
Superannuation guarantee rate |
|---|---|
1 July 2021 to 30 June 2022 |
10.0% |
1 July 2022 to 30 June 2023 |
10.5% |
1 July 2023 to 30 June 2024 |
11.0% |
1 July 2024 to 30 June 2025 |
11.5% |
1 July 2025 to 30 June 2026, and onwards |
12.0% |
Choice of fund changes (stapled fund)
Legislation currently before Parliament proposes amendments to the choice of fund rules in the Superannuation Guarantee (Administration) Act 1992for new employees commencing employment on or after 1 July 2021.
Under the revised rules, employers will be required to contribute to an employee’s fund of choice in the first instance. If the new employee does not nominate a fund of choice, a contribution will be required to be made to the employee’s existing superannuation account as identified by the ATO – referred to as the employee’s “stapled fund”. If the new employee does not nominate a fund of choice and the ATO does not identify an existing stapled fund, the employer will be required to contribute to the employer’s default superannuation fund.
Employers will need to review existing on boarding processes to incorporate the requirement to source stapled fund details for new employees from the ATO if not provided by the new employee directly.
It is unclear at this stage if the amendments will pass. However, employers should be ready to implement revised procedures from the planned commencement date, if required.
Maximum super contributions base
The superannuation guarantee contribution required in respect of an employee is calculated by multiplying the applicable contribution rate (10% from 1 July) by the lesser of the employee’s quarterly ordinary time earnings and the maximum super contributions base.For the year commencing 1 July 2021, the maximum super contributions base will increase to $58,920 per financial quarter (which equates to maximum required superannuation contributions of $5,892 per quarter).
Although employers are only required to contribute superannuation up to the maximum contributions base, they may choose to contribute in excess of this amount if required by the employment contract, or the employer’s policy is to do so.
Concessional contributions cap
There is an annual limit on the amount of concessional superannuation contributions that can be made on behalf of an employee. Concessional contributions include employer contributions (superannuation guarantee and salary sacrifice) as well as personal contributions claimed as a tax deduction.
From 1 July 2021, the annual concessional contributions cap will rise to $27,500 (up from $25,000) representing the first change in the cap since 1 July 2016. This may be relevant for employers who pay superannuation on employee’s earnings in excess of the maximum super contributions base or for employees in considering their salary packaging arrangements going forward.
Penalties on superannuation guarantee charge amounts
An employer that has an underpayment of superannuation guarantee for a quarter will be liable for a superannuation guarantee charge (SGC) amount (i.e.,the shortfall amount, nominal interest and an administration charge). The ATO can also assess a penalty amount of up to 200% of the SGC.
Following the conclusion of last year’s superannuation guarantee amnesty, the ATO finalised Practice Statement Law Administration PS LA 2020/4which outlines their approach in assessing penalties on SGC amounts. Generally, penalties will not be assessed below 100% of the SGC amount unless an employer voluntarily discloses an SGC shortfall before ATO intervention or exceptional circumstances apply.
The clear message to all employers is that if there is any possibility that they have underpaid superannuation guarantee or made late payments, they should seek to undertake a review and lodge superannuation guarantee charge statements (if necessary) to avoid the possibility of excessive penalties. In addition, employers should ensure their processes and reporting are robust and capable of meeting their superannuation guarantee obligations, particularly in light of upcoming changes to the superannuation guarantee rate.
Removal of the $450 exclusion
Currently, employers are not required to make superannuation contributions under the superannuation guarantee legislation for employees in receipt of salary and wages of less than $450 in any calendar month. Many employers have configured their payroll systems to accommodate this exclusion.
The Government announced in the recent Federal Budget that this exclusion will be removed with effect from 1 July 2022(subject to the passage of the amending legislation). This will mean that superannuation support must be provided to employees regardless of the level of income they receive in any one month. This is designed to ensure low income earners are not disadvantaged and will primarily impact employers with casual and part-time employees.
Employers need to keep track of this change to ensure their payroll systems are correctly configured once the measures take effect.
Next steps
It is critical that employers update their payroll systems for the changes that take effect from 1 July noted above to ensure that they do not inadvertently underpay employee superannuation entitlements and be subject to significant penalties.They should also ensure that details of each employee’s fund of choice (and stapled fund as appropriate) are recorded.
