Super increase on 1 July – pay cut for workers or higher costs for businesses?

The annual increases to Australia’s compulsory superannuation scheme start on 1 July 2021, with the first increase to take the amount employers need to pay on behalf of their employees from 9.5% to 10% of an employee’s salary.  This will move up each year to 12% over five years.  

While this sounds like good news for employees, don’t set off the party poppers yet!  And employers, before you panic, consider your Employment Contracts to work out if the extra money is to come from you, or your employees. 

Under the Superannuation Guarantee (Administration) Act 1992, all employers are required to pay minimum superannuation  contributions, or risk being slapped with a penalty.

There are generally three types of Employment Contracts: 

  • Contract that says salary plus minimum super;
  • Contract that says salary plus specified % super; or
  • Contract that specifies a total package including super.

Looking at each one separately …

1. Salary plus minimum super

These contracts say that employees shall receive their salary plus the minimum, compulsory superannuation guarantee contribution.

In this case, it won’t be necessary to amend anything in your Employment Contracts to mirror the incremental increases. The only thing that is required of employers is to make increased superannuation contributions for their employees. The take-home pay of your employees will not change.

2. Salary plus specified % super

If your Employment Contracts say that employees are to be paid their salary plus ‘9.5% superannuation’, employers can’t rely on this to continue to pay 9.5% after 1 July – they will need to adjust their superannuation contributions to ensure that they pay the minimum compulsory superannuation payments. 

Employers should consider adjusting their Employment Contracts so that they reflect the ‘minimum level required, as opposed to incorrectly specifying an outdated superannuation rate.  This amendment could be done in line with any annual salary or HR review.  If the percentage referred to in the Employment Contract is higher than the statutory minimum, say 11%, then the employer can elect to leave the Contract as is and continue to pay the stated amount. 

3. Total salary including super

If your Employment Contracts include a statement along the lines of a ‘total remuneration package including superannuation’, or ‘$X inclusive of super’, an increase in the statutory superannuation payments can be absorbed into the total remuneration package or specified salary.  The effect of this will mean that your employee’s take-home salary will decrease, but you will continue to pay the same total remuneration/salary.  

Employers should start looking at their Employment Contracts to determine what is required post 1 July in terms of superannuation payments. Importantly, if you intend to rely on the total remuneration package/salary and having employees absorb that cost, which will have the effect of reducing take-home salaries of your employees, check that the reduction won’t bring any salary below the minimum wage requirements.  If this will occur, the employer must increase the employee’s total remuneration package/salary to ensure that it pays the new superannuation contributions, while maintaining the employee’s salary on or over the minimum wage requirements.

If an employer elects to maintain their employee’s take-home wage by absorbing the increase in the mandatory superannuation payable itself, we suggest that you update your Employment Contracts to reflect the new total package amount.  This can be done in conjunction with any wage or HR review.  

Take Away

The increase in superannuation payable can be absorbed by employees as part of total remuneration packages in certain circumstances but otherwise, it will represent an additional mandatory cost for employers.  When making this decision, make sure you consider any PR and staff morale consequences of your decision, particularly if you decide that your employees will absorb the increase by taking a lesser base salary. 

If you are unsure of the effect of these changes on your Employment Contracts, give our business lawyers a call. 

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