From 1 July this year the mandatory superannuation guarantee will increase by 0.5%. Currently, employers are obligated to contribute 9.5% of an employee’s base salary to their nominated superannuation fund. From 1 July this will increase to 10% and will continue to increase by 0.5% each year until it reaches 12% in 2025.
What do the changes mean for my business?
An increase to superannuation can have a significant financial impact on businesses, particularly small businesses. The natural temptation is to reduce an employee’s base salary to accommodate the increase of the super guarantee. But is this legal? In some circumstances an employer may be able to reduce an employee’s base salary, however, this will depend on how the payment of salary and super is written in the employment contract. A qualified employment lawyer can advise if this is an option for your business.
However, taking this approach requires more than legal considerations. What impact will reducing an employee’s base salary have on their commitment to your business? Negatively impacting the morale of your employees’ risks increasing staff turnover. With the high costs of recruiting and difficulty attracting top talent it’s worth asking, is the financial saving really worth it? If the super guarantee is going to increase pressure on your business, consider how else you can reduce costs to accommodate the increase.
What else is happening?
Further changes to superannuation will see the removal of the $450 threshold, whereby employees earning less than $450 per month will now qualify for compulsory superannuation payments. This will likely come into effect in July 2022.
The overhaul of the $450 threshold will significantly affect industries such as hospitality, retail, and aged care, who employ a lot of casuals. Businesses affected by the change need to plan for the increased financial burden and carefully consider who is an employee. Some people may be classed as independent contractors when they are in fact employees. Additionally, in some cases the employer may be required to pay the superannuation of an independent contractor. If you are unsure what your obligations are regarding super and contractors visit the ATO Website.
What are the risks of non-compliance with superannuation legislation?
Failure to adhere to the superannuation guarantee carries significant financial risk, regardless of whether the breach was intentional or a genuine mistake. The penalties include;
- Payment of the super guarantee shortfall
- 10% interest on those amounts
- Administration fee of $20 per employee, per quarter
The best way to avoid these significant penalties is;
- ensure that you are clear on how super is calculated for each employee
- review the current payroll setup (remember that super is only considered paid when the fund receives it not when the company pays it)
- conduct a thorough review of the company’s Award classifications to ensure you are paying the correct minimum rates.
If you want to talk through pay or managing your HR to achieve business success through your people, book a free Discovery Session with one of our Experts now.