From 1 July 2022, the current superannuation guarantee rate of 10% will increase to 10.5%. This increase is a statutory increase and therefore compliance with the increase is mandatory. The rate of the superannuation guarantee is currently legislated to rise each year by 0.5% each July until it reaches 12%.
What is the superannuation guarantee?
The superannuation guarantee is an amount that an employer must pay into a superannuation account on behalf of each of their employees, subject to any statutory exemptions. Such superannuation is calculated on “ordinary time 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 a 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. How an Employer can comply with their statutory obligation will be wholly dependent on the contractual arrangements which are in place with their employees.
The increased superannuation amount takes effect from the first pay period on or after 1 July. It applies to all hours in that pay period, even if such hours were worked before 1 July 2022.
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 10% to 10.5% from 1 July 2022. That is, the cost of employing such employees will increase by 0.5% from 1 July 2022 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 2022. 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 will continue to increase by 0.5% each year until it reaches 12%, 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 2022.
For assistance, please contact one of our Industrial Relations experts via the form below or on:
Author: Cheryl-Anne Laird
All rights reserved. This publication in whole or in part may not be reproduced, distributed or used in any manner whatsoever without the express prior and written consent of Mazars, except for the use of brief quotations in the press, in social media or in another communication tool, as long as Mazars and the source of the publication are duly mentioned. In all cases, Mazars’ intellectual property rights are protected and the Mazars Group shall not be liable for any use of this publication by third parties, either with or without Mazars’ prior authorisation. Also please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.