Employers should be aware that as of July 1, 2021, the superannuation guarantee rate has increased to 10% from the previous rate of 9.5%. Further increases of 0.5% per year will continue until the rate reaches 12% as of 1 July 2025 ongoing. Employers will need to consider the potential increased SG costs of these changes going forward and make sure their payroll settings have been updated.
Perhaps the most long-term impact of this year’s increase and further forecasted increases will be a need to reassess both current and new salary packages for employees. Terms of existing packages will need to be reviewed with caution as employers consider if the 0.5% increase becomes an additional component of the package with no change to employee salary, or whether a reduction in salary is appropriate or allowable to compensate for the increase.
Employers also need to be aware that they cannot use an employee’s salary sacrifice contributions to account for the extra 0.5% of SG. The ordinary time earnings (OTE) base for SG purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement are not treated as employer contributions which reduce an employer’s charge percentage.
The July 1 superannuation guarantee rate increase also changes the maximum superannuation contribution base, and each additional yearly increase will also impact these numbers. Key items to note this year are:
- The maximum superannuation contribution base increases to $235,680 annually or $58,920 quarterly;
- The superannuation guarantee opt-out income threshold increases to $275,000. High-income individuals with more than one employer can opt-out of superannuation guarantee so as not to breach the concessional contributions cap;
- The concessional contributions cap increases to $27,500 annually. Any contributions above this cap are subject to a higher tax rate plus a charge for excess contributions.
Additionally, as per the 2021-22 Federal Budget, the Australian Government will be removing the $450 per month threshold, expanding coverage of superannuation guarantee “to eligible employees regardless of their monthly pay.” While this change is not yet law, it will come into practice on July 1, 2022, when employers will be required to pay superannuation guarantee to employees who satisfy the other eligibility requirements, regardless of their monthly salary.
With these new changes now in place, employers need to mobilise. It’s time to review existing and future employee salary packages, agreements, and contracts. All payroll systems and settings also need to be updated to reflect the new minimum superannuation guarantee of 10%, effective immediately.
How can Halkin Business Partners help?
To better understand how these superannuation changes impact your business – both this year, and ongoing to July 1, 2025 – speak to one of our tax specialists. Halkin Business Partners outsourced accounting and HR Services team can assist with employee package reviews, tax and payroll systems, as well as budget & cashflow advice.