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Employers and employees alike need to be aware that as of 1 July 2021, the superannuation guarantee rate rises to 10.00%, with further increases to come over the next five years. Due to the cash flow implications of these changes to businesses, it is important for employers to factor these changes in when negotiating new salary and wage packages. Additionally, subject to the terms of existing salary and wage packages, employers may have a 0.5% increase to their employee super costs as of 1 July 2021 and increasing to 2.5% by 1 July 2025.

What are the changes?

The superannuation guarantee is the minimum percentage of an employee’s wages or salary that must be paid into a complying super fund account by their employer. The rate at which superannuation is calculated is legislated by the Australian Government.

Since 1 July 2014, the superannuation rate has remained frozen at 9.5% of ordinary time earnings. However, the most recent amendments to the Superannuation Guarantee (Administration) Act 1992 (Cth) have scheduled a 2.5% increase to 12.00% by 1 July 2025. This increase will occur incrementally, rising by 0.5% each financial year as follows:

These changes reflect a desire of the Australian Government to reconceptualise superannuation as a vehicle “to provide income in retirement to substitute or supplement the Age Pension”. While such reform will result in Australian workers accumulating more superannuation over their time in the work force, the changes will have short-term implications for both employers and their employees going forward.

How will employers and employees be impacted?

The degree to which an employer, or employee, will be impacted by these changes will depend on the nature of the employment terms in the workplace.

Broadly, for those employees who have superannuation added on top of their wages, the cost of employment for the business will rise by the additional superannuation amount over the 5 years. As such, from 1 July 2021, the increased cost to the employer will be 0.5% of employees’ ordinary time earnings. This has no impact on the employee’s take home pay.

However, for those employees on a salary package negotiated to be inclusive of superannuation, the increase in compulsory employer contributions will not increase the cost of employment for the business. Instead, employees will see a decrease in their net pay by the additional superannuation amount which increases the amount paid into their superannuation funds. From 1 July 2021, the decrease in the take home portion of the package will be 0.5%, incrementally raising to reach 2.5% in 2025.

Next steps for employers

As an employer, it is important to be transparent with employees about changes to their superannuation and their circumstances. It is also important to factor any increase in superannuation payable when budgeting for the future financial years. There are significant penalties associated with failing to pay superannuation correctly, so an understanding of your future obligations is crucial. We advise that you review your employee agreements and contracts to understand future employee costs.

Learn more

If you have any questions regarding the impact these superannuation guarantee changes may have on you, contact Kylee Smith or your Pilot Advisor on 07 3023 1300 for assistance.