14th May, 2021
Compulsory superannuation payments are set to increase and the $450 threshold scrapped – so what will changes to super mean for employers?
Employers in Australia are required by law to make regular contributions to their employees’ superannuation, but the amount they’re expected to contribute is about to rise.
The minimum contribution amount, currently set at 9.5 percent of ordinary time earnings (OTE), will increase to 10 percent on 1 July 2021.
Compulsory super is one of the three pillars of the Australian retirement income system. Known as the Superannuation Guarantee (SG), it’s a scheme designed to provide an income to Australians when they retire, separate to salaries and wages. The other two pillars are a publicly funded Age Pension and voluntary savings.
The SG system was introduced in 1992, and started with a contribution rate of three percent. Every review into the effectiveness of the system fuels debate about whether the level of super contributions gives retirees an adequate income for a comfortable retirement, and the impact of raising the SG on wages growth.
By 2014, the minimum amount had increased to 9.5 percent, the level it sits at today.
The Super Guarantee is legislated to continue rising in increments to 12 percent by 2025, unless the government introduces measures to delay those increases.
After allowing Australians to access their super early last year. it seems that the current government is now committed to enabling them to build it up again and one method is by allowing this year’s increase to the super guarantee to go ahead.
The gradual increase will allow businesses time to plan for the future, rather than manage a large increase in one go.
When the minimum SG contribution level goes up, businesses will need to adjust payroll systems to pay the increased amount to eligible employees.
The Australian Tax Office (ATO) has an online tool to help employers determine which of their employees and contractors are eligible for SG contributions.
If employers fail to do this by the due date, they could face penalties from the Australian Tax Office (ATO) for late or inaccurate payments.
Generally speaking, if you’re using an online payroll system that’s up-to-date and complies with Single Touch Payroll (STP), these changes will happen automatically for any new employees added after the date SG increases. For existing employees, employers will be able to follow a simple process to manually update the SG amount.
Caps on concessional and non-concessional super contributions are also set to go up from 1 July 2021.
Concessional contributions are those made into your super fund before tax, and the cap will increase from $25,000 to $27,500.
According to the ATO, the most common types of concessional contributions are employer contributions, such as SG and salary sacrifice contributions.
Non-concessional contributions are contributions made into your super fund after tax is paid, and the annual cap will increase from $100,000 to $110,000.
Caps are indexed annually, and are set to increase for the first time since July 2017.
Employees will be able to put more into their super funds, but will need to remain within the contribution caps to avoid paying extra tax.
Employers might expect some employees will wish to review their salary packages effective from 1 July 2021 with reference to salary sacrificed superannuation, to ensure they maximise — but don’t exceed — the new caps.
A measure unveiled in the recent Federal Budget announcements, the $450 super threshold will be scrapped next year to support those on low incomes and build greater equity into the superannuation system.
Currently, employers don’t have to pay super to employees who earn less than $450 per month.
This change, if legislated, will apply from 1 July 2022, triggering another around of payroll adjustments as employers make SG payments to more staff.
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