In Short
- Superannuation must be separate from base salary unless explicitly agreed.
- Failing to clarify superannuation in contracts can lead to unexpected costs.
- Always review employment agreements to ensure clear terms on superannuation inclusion.
Tips for Businesses
Ensure your employment contracts clearly specify whether superannuation is included in the salary package or paid separately. This will help you avoid misunderstandings and potential financial surprises down the track. Regularly review your agreements to stay compliant with superannuation laws.
Table of Contents
- What is Superannuation?
- Advantage of Expressing Salary as Exclusive of Superannuation
- Disadvantages
- Advantage of Expressing Salary as Inclusive of Superannuation
- Disadvantages
- What is a Maximum Super Contributions Base?
- How Do I Tell My Employees I Will Amend Their Employment Contracts?
- Key Takeaways
- Frequently Asked Questions
As an employer, you must pay your employee’s superannuation (‘super’) contributions into their nominated or stapled fund. In doing so, you can exclude or include super in your employee’s salaries. This may seem like a minor decision. However, it can significantly impact your payroll liability, your employee’s expectations and overall satisfaction with the benefits they receive in their role. This article explores recent superannuation increases and the pros and cons of expressing salaries as inclusive or exclusive of superannuation.
LegalVision’s Employee Share Schemes Guide is a comprehensive handbook for any startup founder or business owner looking to attract and motivate top employees with an Employee Share Scheme.
What is Superannuation?
Superannuation is money you pay eligible workers to provide for their retirement.
Under the superannuation guarantee as of 1 July 2024, employers must contribute 11.5% of an employee’s ordinary earnings to their superannuation fund. This includes all employees over the age of 18. If they are under 18 but work more than 30 hours per week, you must still contribute to their fund.
You must pay the employee’s super at least every three months and into the employee’s nominated account. Employees only have access to their superannuation in limited circumstances.
From 1 July 2022, the government also removed the $450 minimum monthly income threshold to be eligible for super. This means you must pay super to all eligible employees, regardless of their income. Again, if the individual is under 18, they must work more than 30 hours to be eligible.
Advantage of Expressing Salary as Exclusive of Superannuation
The main advantage of expressing salaries that are exclusive of superannuation is that you are transparent with your employees. It may also make your salary offering more competitive. This is because employees tend to characterise super as a long-term benefit that does not form part of their immediate remuneration or take-home pay.
When an employee’s salary is represented exclusive of superannuation, they may perceive a higher base salary. Even if the overall package is the same, employees may perceive the value as higher when exclusive of superannuation.
Continue reading this article below the formDisadvantages
The main disadvantage of expressing your employees’ salaries as exclusive of superannuation is that their current remuneration will not be able to absorb any future increases in superannuation.
The Federal Budget 2022 has maintained the Super Guarantee’s legislated increase to 12%. From 1 July 2024, the Super Guarantee increases to 10.5%. It will increase by 0.5% on 1 July yearly until it reaches 12% in 2025. Therefore, as an employer, you must prepare to pay the additional superannuation each financial year.
Advantage of Expressing Salary as Inclusive of Superannuation
One advantage of expressing your employee’s salaries as inclusive of super, is that the salary will absorb the legislated superannuation increases. This means that your employees will be taking home less every pay cycle.
Disadvantages
The main disadvantage of this approach is that employees may become demotivated when they become aware that they are taking home less than when they commenced employment with you. To avoid this surprise for your employees, you should clearly outline that the legislated increases will be absorbed by their remuneration in your employment contracts. This ensures transparency for your employees.
You must be fully aware of how much your employees would receive as the take-home payment when superannuation is combined with the base salary. This awareness will ensure there is no oversight regarding minimum entitlements as the superannuation rate increases each year. If you underpay your employees, you may be subject to civil penalties.
What is a Maximum Super Contributions Base?
The maximum super contribution base is the highest amount an individual employee may earn per quarter before an employer caps the superannuation guarantee contributions for that quarter. This means you, as an employer, will only need to contribute the current rate of the superannuation guarantee contributions. As of 1 July 2024, the rate would be 11.5% of the employee’s earnings.
How Do I Tell My Employees I Will Amend Their Employment Contracts?
You can issue a variation letter to your employees if you wish to change how you express remuneration in your employment contracts. The variation letter should outline the proposed changes and seek employee consent. Although, it is worth noting that your employees do not have to agree to these changes. Should they disagree with your proposed changes, you cannot take any adverse action against them.
Key Takeaways
Superannuation is an employer obligation that can be pretty demanding. However, you must be aware of the different ways you can manage your superannuation obligations and the expectations of your employees. As mentioned above, the super guarantee legislation means that super contributions will increase by 0.5% annually until 2025. Ensure you are on top of these changes and consider if you need to amend your employment contracts to reflect your choice.
If you need help assessing your superannuation obligations as an employer, our experienced employment lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1800 532 904 or visit our membership page.
Frequently Asked Questions
You should increase your super contributions in line with the legislated increase. So, on 1 July 2025, or when the subsequent increase is set to occur. From 1 July 2025 onwards, the general superannuation guarantee rate will be 12%.
Yes, you can issue a variation of the employment letter. However, it would help if you kept in mind that you cannot compel your employee to agree to the said change. You also cannot take any adverse action if they disagree. The variation of the employment letter should be signed by the employee to ensure its enforceability.
We appreciate your feedback – your submission has been successfully received.
