The annual increases of our national superannuation guarantee contribution rates began on the 1st July, 2013 when the rate rose 0.25% to 9.25%. From the 1st July 2014 the rate is 9.5%. This rate is set to continue rising for the next six years until it peaks at 12%. The question now, which every employer is asking: Can I legally offset these hikes in super contributions by adjusting my employees’ salaries?
It’s an important question to ask to ensure all is aboveboard and that no laws are being broken, especially since the answer differs depending on your employee’s employment terms and conditions.
|Financial year||SGC rate|
|2012 – 2013||9.00%|
|2013 – 2014||9.25%|
|Current year 2014 – 2015||9.50%|
|2015 – 2016||10.00%|
|2016 – 2017||10.50%|
|2017 – 2018||11.00%|
|2018 – 2019||11.50%|
|2019 – 2020||12.00%|
The employment contract is crucial
First, we will explore the legal requirements, followed by an outline of the probable expectations of employees.
Under the Superannuation Guarantee (Administration) Act 1992, all employers, regardless of what’s written in the contracts of their employees, are required to pay whatever the minimum superannuation contributions are, in order to avoid incurring the ‘superannuation guarantee charge’.
How you are required to pay the new superannuation amount depends on what is in your employment contracts. There are 3 main possibilities:
1. Contract says salary plus minimum super;
2. Contract says salary plus specified % super; or
3. Contract specifies a total package including super.
1. Salary plus minimum super
For example, the contract may state that employees are to be paid their salary plus the minimum, compulsory superannuation guarantee contributions. In this case, it won’t be necessary to amend those clauses to mirror the incremental percentage increases. The only thing the employer must do, in this situation, is make the correct superannuation contributions. This results in higher payments by the employer, to cover the extra super.
2. Salary plus specified % super
Alternatively, if the contract asserts that employees are to be paid their salary plus 9% superannuation, employers will have no choice but to adjust their superannuation contributions to 9.5%. Again, this will mean an increase to the remuneration overall without affecting the salary of the employee. As an employer, you should try to adjust your employment contracts so that they reflect the ‘minimum level required’, as opposed to incorrectly specifying an out-dated superannuation rate. This adjustment can be made at pay review time.
3. Total salary including super
Lastly, if your employment contracts are worded in terms of a Total Remuneration Package (TRP) that includes the superannuation contributions, the employee’s total take-home salary can decrease without breaking any laws. In other words, the employer can absorb the increased super contributions within the package. This is the employer favourable employment contract.
Of course, despite the legality of this approach, it may lead to some backlash from disgruntled employees. For this reason you may wish to prepare a strategy for handling these complaints. Importantly, before you reduce the take-home salaries of staff that fall in the TRP category, check to see that none of these reductions bring the overall amount below minimum wage requirements. If they do, then the employer will have to pay out of the business to meet these new superannuation contributions.
If employers choose to maintain the cash amount their employees take home (despite being allowed to absorb these increases), it is advisable that all employment contracts accurately reflect whatever the new TPR includes.
In summary, these additional superannuation payments can be absorbed as part of total renumeration in certain circumstances. If you are unsure of whether your employees contract terms and conditions allow for these contributions to be absorbed by shifting from take home salary to superannuation contributions, check with a business solicitor to avoid any complications with the ATO.