Annual increases to superannuation guarantee contribution rates commence from 1 July 2013.
|Financial year||SGC rate|
|Current year 2012 – 2013||9.00%|
|2013 – 2014||9.25%|
|2014 – 2015||9.50%|
|2015 – 2016||10.00%|
|2016 – 2017||10.50%|
|2017 – 2018||11.00%|
|2018 – 2019||11.50%|
|2019 – 2020||12.00%|
Employer Legal Obligations:
Employers must make the minimum compulsory contributions required by the Superannuation Guarantee (Administration) Act 1992, in order to avoid the superannuation guarantee charge, regardless of what is in their employees’ employment contracts.
However, employers should not ignore the terms and conditions in their employees’ employment contracts.
• If terms in the employment contracts say, “employees are paid a salary plus the minimum superannuation guarantee contributions required to avoid the superannuation guarantee charge”:
No amendments will be required to those clauses to reflect the increases in rates.
In this case, employers simply need to ensure that superannuation contributions are made at the correct rates. This will result in an increase in the employees’ overall remuneration, although the base salary will remain the same.
• If terms in the employment contracts say, “employees are paid salary plus 9% superannuation”:
In this case, employers must make contributions in line with the increases. This will result in an increase in the employees’ overall remuneration, although the base salary will remain the same.
Employers may seek to vary existing employment contracts so they no longer specify an incorrect superannuation rate. The variation to the contract should require contributions at the “minimum level” required in order to avoid the superannuation guarantee charge. This variation may be implemented with the employees’ agreement, may be at pay review time.
• If terms in the employment contract say, “employees are paid a fixed, Total Remuneration Package (“TRP”), inclusive of superannuation:”
In this case, the employee’s cash take home pay may be lawfully reduced to absorb the increase to the superannuation guarantee contribution. However, this approach is likely to result in questions or complaints from employees and potentially the involvement of the Office of the Fair Work Ombudsman.
Employers may wish to get on the front foot and have a communication strategy ready to manage that inevitable discussion.
Further, if the over-award/agreement buffer built into an employee’s TRP has not been reviewed in some time, it would be a good idea to review that buffer before the reduction in take home pay is implemented to ensure that it does not result in payments that are below minimum wage requirements.
If employers decide to maintain an employee’s cash take home pay despite the fact that the TRP allows the increase to be absorbed, we strongly recommend varying employees’ contracts to reflect the new pay structure. Remember that increases to the rates will be a regular feature for the next seven (7) financial years, so any variation should take into account the ongoing changes. Given that the employee will benefit from this approach, obtaining their agreement to a variation should not prove problematic.
Superannuation Guarantee Charge:
Employers must meet the higher contribution rates from the September quarter 2013.
Employers that fail to meet contribution obligations must lodge a Superannuation Guarantee Charge Statement quarterly with the Australian Taxation Office (“ATO”), and must pay the superannuation guarantee charge.
The charge consists of the shortfall in superannuation (which the ATO is then responsible for re-distributing to the relevant employees’ funds), interest on the shortfall (10% per annum), and an administration fee ($20 per employee, per quarter). The charge is not tax deductible.
Depending on the circumstances, further penalties may also be imposed at the ATO’s discretion. Importantly for company directors, personal liability now attaches to them as individuals for penalties equal to any unpaid amount.
If not already accounted for, the increases will need to be factored into your business’ budgets going forward.
Employers should also keep them in mind during annual pay reviews, and when negotiating for any new enterprise agreements.
Lastly, make sure that your payroll system or payroll provider is ready to handle the increase on 1 July.
If you have any questions, please contact Brooke Pendlebury, at firstname.lastname@example.org.
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