In 2012 the Gillard government legislated an incremental increase of the superannuation guarantee charge up to 12%, which would have been completed by 2019. In 2014, the Abbott government deferred the increases so that superannuation contributions would be set at 9.5% until 1 July 2021, after which it would rise by 0.5% each year until it reached the 12% goal in 2025.
This means that the superannuation guarantee charge will be increasing to 10% of an employee’s ordinary time earnings from July 2021.
Federal government response
It was anticipated that the current Liberal Government under Scott Morrison would once again defer the superannuation increase, particularly in light of the difficult year experienced by Australian employers in 2020.
As recently as the end of 2020, the Prime Minister stated that the Federal Government would carefully consider further delays to the legislated increases to super.
However, more recently, Jane Hume, the Minister for Superannuation and Women’s Economic Security, stated that the upcoming increase to 10% was still scheduled to occur, indicating that the Government is unlikely to delay the increase at the eleventh hour.
Of course, it remains open to the Government to make a decision up until the increase takes place on 1 July 2021, or in the following years.
Effect of superannuation increase
For Australian businesses, the effect of an increase to superannuation will increase the employment costs in respect to employees paid by the hour, or salaried employees whose annual salaries are exclusive of superannuation.
Notably, for employees whose annualised salary packages are inclusive of superannuation, the increase may be able to be absorbed into the salary package (with a corresponding decrease to base salary), provided that:
- The terms of the employee’s employment contract allow for this; and
- The adjustment to the employee’s base salary does not result in the employee being paid less than the minimum rates of pay contained in any applicable industrial instruments or the National Minimum Wage.
For high paid employees, employers should also consider the impact of the maximum contributions base (currently $57,090 per quarter) and ensure that employment contracts reflect whether contributions will be made beyond the maximum contributions base. The maximum super contribution base will further increase to $58,920 for the 2021/22 financial year.
Additionally, the concessional superannuation contribution cap (being contributions that are made into a super fund before tax) will increase to $27,500 for the 2021/22 financial year.
Considerations for employers
Businesses should budget for the upcoming year with the additional 0.5% superannuation contributions in mind. This will again be the case for each year leading to 2025, as the superannuation guarantee charge is set to increase as follows:
- 1 July 2021 to 30 June 2022 – 10.0%
- 1 July 2022 to 30 June 2023 – 10.5%
- 1 July 2023 to 30 June 2024 – 11.0%
- 1 July 2024 to 30 June 2025 – 11.5%
- 1 July 2025 to 30 June 2026 – 12.0%
Further, employers should be aware that in the course the most recent federal budget announcements, the Treasurer indicated that the $450-per-month threshold for entitlement to superannuation will be lifted before the next financial year, meaning more employees will likely be eligible for superannuation payments.
We will provide further updates should there be any confirmed changes to the legislated superannuation increases or thresholds.
If you have any questions regarding how the superannuation changes impact your employment arrangements, please contact our team at HR Legal.