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The government’s 2021-2022 budget outlines new changes concerning superannuation. If you are an employer, it is essential to understand these changes, to limit your risk of non-compliance with superannuation legislation, the Fair Work Act 2009 and modern awards. You should also understand these changes from a commercial perspective to consider labour costs for the next financial year. This article summarises the changes and considers whether this may increase your labour costs.

What Is Superannuation?

Superannuation is a compulsory contribution that employees make to an account nominated by the employee. The funds will accrue over the employee’s working life, allowing the employee to use the funds during their retirement. You can calculate the compulsory contribution amount as the superannuation guarantee rate (currently 9.5%) against the employee’s ordinary time earnings (OTE). The OTE is the amount the employer pays employees for their ordinary hours of work. OTEs are broadly equivalent to:

  • employees’ rate of pay multiplied by their ordinary hours of work; or
  • their salary;

as set out in their employment agreement.

How Much Superannuation Is Payable?

Previously, the superannuation guarantee rate had not changed since 2014, where it remained at 9.5%. However, as of 1 July 2021, the superannuation guarantee has increased to 10%. Likewise, the superannuation guarantee rate will progressively increase by 0.5% until it reaches 12% by July 2025. 

You can refer to the table below to note the guarantee rate progression.

Financial yearSuperannuation guarantee rate
1 July 2021 – 30 June 202210%
1 July 2022 – 30 June 202310.5%
1 July 2023 – 30 June 202411%
1 July 2024 – 30 June 202511.5%
1 July 2025 – 30 June 202612%

What Does This Mean for Your Employees?

Whether the total amount payable to your employees will increase depends on the details of their remuneration in the employment agreement.

The employment agreement can express your employees’ rate of pay or salary as a base rate plus superannuation, for example, $60,000 plus superannuation. In that case, the total amount will increase as follows:

  • the employee will continue to receive their base rate of pay or salary of $60,000 into their nominated bank account; and
  • the employee will receive a greater superannuation contribution to their nominated superannuation account (from $5,700 to $6,000).

Alternatively, the employment agreement can express your employees’ rate of pay or salary as a total remuneration, for example, $60,000, including superannuation. Accordingly, it may be possible for you to redistribute the amounts payable to the employee into their nominated bank account and superannuation fund. 

However, this is subject to how you draft the employment contract in a way that contemplates this. You should also consider your ongoing compliance with employees’ minimum rate of pay, including under an applicable award. 

Example

The rate of pay under an award is $20. The employment agreement confirms the employer pays a total package of $21.90 inclusive of superannuation. If the employer redistributes the amounts to comply with the superannuation guarantee rate, they will underpay the employee by reference to the minimum rate of pay.

The increase in superannuation contributions from $1.90 to $2 results in an underpayment if you reference the minimum pay rate (i.e. from $20 to $19.90). This is because the minimum rates of pay in modern awards are expressed exclusive of superannuation.

Therefore, the employer will need to increase the total remuneration so that the employee is not underpaid and the employer complies with the new superannuation guarantee rate.

Who Is Entitled to Superannuation Contributions?

To date, not all employees have been entitled to superannuation contributions. To be entitled to receive superannuation contributions, employees must earn at least $450 per month from the same employer (in addition to meeting other eligibility requirements). In practice, this means that casual employees and some part-time employees will often not meet the required threshold and therefore not receive any superannuation.

From 1 July 2022, Parliament is expected to expand the coverage of the superannuation guarantee to include employees regardless of how much they earn each month.

Key Takeaways

The changes to superannuation could have a significant impact on the cost of labour for your business. Understanding these changes will limit your risk of non-compliance with the new legislation or the Fair Work Act. On that basis, you should review which employees are not currently eligible but may be entitled to superannuation by July 2022. 

You should also consider how employees’ rates of pay or salaries are expressed in their employment agreement and make arrangements internally or with your payroll provider to ensure superannuation contributions are up to date. If you need legal assistance with employment matters or other questions relating to the superannuation changes, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is superannuation?

Superannuation is a compulsory contribution that employees make to an account nominated by the employee. The funds will accrue over the employee’s working life, to be used by the employee to fund their retirement.

How much superannuation is payable?

As of 1 July 2021, the superannuation guarantee is 10%. Likewise, it will progressively increase by 0.5% until it reaches 12% by July 2025.

Are all my employees entitled to superannuation?

To receive superannuation contributions, employees must earn at least $450 per month from the same employer, plus meet other eligibility requirements. Accordingly, some casual or part-time workers may not meet this requirement and therefore cannot receive superannuation. However, from 1 July 2022, Parliament will expand the coverage of the superannuation guarantee to include employees regardless of how much they earn each month.

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