Changes to Superannuation Contributions
Upcoming changes to superannuation contributions
On 1 July 2021, the superannuation guarantee percentage will increase from 9.5% to 10%. Although this sounds relatively straight forward, there are a few steps employers will have to take to ensure compliance with their obligations.
What does this mean practically?
If an employer’s superannuation contributions are currently 9.5%, then either the employer or the employee will have to bear the cost of the 0.5% increase in superannuation contributions. To determine who will incur this cost, you need to look at the wording of each employment contract.
If an employment contract states that an employee’s wage is “exclusive of superannuation”, the employer will have to pay the additional 0.5% to the superannuation contribution.
However, if an employment contract states that an employee’s wage is “inclusive of superannuation”, then the contribution will need to be deducted from the employee’s wage.
But what if there is no written contract? Generally speaking, this will mean that the employer will bear the additional cost of the 0.5% superannuation contribution, however, this needs to be considered on a case-by-case basis.
Who is affected by the changes?
The superannuation guarantee is payable for all full-time, part-time and casual employees. There is currently a threshold of $450 per month (before tax) that an employee must earn before an employer is required to pay the superannuation guarantee. However, the Federal government announced in its 2021/22 budget, that this threshold will be removed, and regardless of how much a person earns in a month, they will be entitled to the superannuation guarantee. This change will not come into effect until the first financial year after the legislation is passed, which is estimated to be in July 2022.
What are the penalties for not paying the superannuation guarantee?
There is a range of penalties for employers who do not fulfil their superannuation guarantee obligations, which include, but are not limited to, the payment of general interest charges and administrative penalties.
Of particular importance is the director penalties for Companies who do not comply with the superannuation guarantee obligations . When a superannuation guarantee charge is outstanding, the director becomes personally liable for the penalty equal to the unpaid amount.
What do you do if you have made an error?
If you discover that an error has been made in calculating superannuation contributions, you should fix the error as soon as possible. The ATO provides time limits for rectifying mistakes, and interest and/or penalties may apply. You can do this by making a “voluntary disclosure” to the ATO. This does not involve admitting any liability. According to the ATO, if you make a voluntary disclosure before you are notified of an examination/audit, then you can likely expect a reduction in any applicable penalties or interests that would apply.
What should you be doing before 1 July 2021?
Employees should review their employment contract to confirm if their wage is inclusive or exclusive of superannuation contributions.
Employers should review all of their employee’s employment contracts to confirm if wages are inclusive or exclusive of superannuation contributions. Employers should also discuss any impacts of the increase in the superannuation guarantee with its employees to reduce the risk of confusion in the workplace.
if employers are making superannuation contributions of 9.5%, this must increase to 10% on and from 1 July 2021, and the 0.5% increase will either be borne by the employer or employee, depending on the individual terms of employment;
if employers are already making superannuation contributions equal to 10% or more, then no increase is required;
if an employer discovers any errors in its business’s superannuation contributions, this must be rectified as soon as possible; and
employers should consider updating their employment contracts to clearly identify how further increases to superannuation contributions will be dealt with in the future (the government plans on incrementally increasing the superannuation guarantee percentage to 12% by 2025).
If you need assistance with interpreting how the increase in the superannuation guarantee percentage should be implemented for you or your business, please contact us on 02 4929 2000 or at firstname.lastname@example.org.
This article is intended to be informational and is not to be taken to be legal advice or to be relied upon. Any person wanting to understand their rights or obligations, or the legal implications relevant to a particular matter, should obtain professional legal advice by contacting Jenkins Legal Services.