The superannuation guarantee is an amount that an employer must pay into a superannuation account on behalf of each of their employees.
There is a minimum and a maximum salary which applies to the payment of the superannuation guarantee however, the vast majority of employees are entitled to the payment on their gross earnings.
Where an employer fails to make the payments or makes them for an amount less than is required, the penalty to be paid by an employer is calculated in such as way by the Australian Tax Office, that it is always going to be a higher amount than the actual underpayment of superannuation. Therefore, to avoid the risk of this penalty and the requirement to pay more than is actually required, all employers should ensure that they are paying the correct employee superannuation.
From 1 July 2021, the current superannuation rate of 9.5% will increase to 10%. This increase is a statutory increase and therefore compliance with the increase is mandatory. The rate of the superannuation guarantee is currently set to rise each year by 0.5% until it reaches 12%. In the absence of any statutory change occurring in that period, the superannuation guarantee rate will increase on 1 July 2022 to 10.5%, from 1 July 2023 to 11%, from 1 July 2024 to 11.5% and finally on 1 July 2025 to 12%.
How an Employer can comply with their statutory obligation will be wholly dependent on the contractual arrangements which are in place with their employees.
Award based employees
Where an employer engages their employees on an Award and pays the amounts set out in the Award, then there is no option but to increase the amount they pay for employee superannuation from 9.5% to 10% from 1 July 2021. That is, the cost of employing such employees will increase by 0.5% from 1 July 2021 to meet this obligation. It may well be that there is also an Award increase as a result of the National Wage Case, from that date, however this has not yet been determined by the Fair Work Commission.
Award based employees who are paid over award and have an offset provision in their contracts of employment.
Where employees are covered by an Award but are paid a rate of pay in excess of the Award, and their contract of employment or employment agreement, provides for an offset capacity, it may be that the employer can utilise the offset clause to absorb the superannuation guarantee increase within the existing total remuneration. We would highly recommend that advice is sought from an industrial relations specialist prior to utilising this option to ensure that there are no other provisions in the employment agreement or contract which make this option unavailable.
Non Award employees
Employees who are not covered by an Award are still entitled to the same superannuation guarantee payment as Award covered employees. Best practice would require that non award employees have an employment contract or employment agreement (instrument) in place which sets out their terms of employment. Such instruments usually contain a remuneration clause which identifies if the amount paid is inclusive or exclusive of superannuation.
Remuneration packages which are exclusive of Superannuation
Where an instrument is structured such that the remuneration is exclusive of superannuation, the employer is highly likely going to have to pay the statutory increase on top of the current salary. That is, the costs of employing that employee will increase by 0.5% from 1 July 2021. There may be some exceptions to this general position which will be dependent on the exact wording in the instrument and if an offset clause operates to allow for absorption of this amount into the overall remuneration package.
Remuneration packages which are inclusive of Superannuation
Where an instrument is structured such that the remuneration is inclusive of superannuation, and the exact amount and/or exact percentage of superannuation included in the remuneration is not stipulated in the instrument, it is highly likely that an employer may elect to absorb the increase in superannuation guarantee within the existing remuneration. We would highly recommend that advice is sought from an industrial relations specialist prior to utilising this option to ensure that there are no other provisions in the employment instrument which make this option unavailable.
Given that the increase in superannuation guarantee is due to increase by 0.5% each year for the next 5 years, it is important that employers understand their obligations and their options in how to ensure that they comply with those obligations.
Our Industrial Relations experts are able to provide advice to clients on the correct interpretation of their existing employment instruments and if there are any options available to the employer in how they comply with their obligations. Where an employer would seek to pursue an option other than increasing the overall remuneration to include the additional 0.5%, it is also important that they communicate with any effected employees so that there are no unpleasant surprises on the first pay period after 1 July 2021.
For assistance please contact one of our Industrial Relations experts on 1300 200 725 or via the form below.
Author: Cheryl-Anne Laird
Author: Cheryl-Anne Laird
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