From the 1st of July 2021, there will be several important changes to the way superannuation works. The rate of superannuation contributions is increasing from 9.5% to 10% on 1 July 2021.
The increase to super amounts is part of a gradual staged increase which will see the superannuation contribution rate rise to 12% by 2025. Businesses should consider communicating the changes to employees and updating any documents that refer to the old rates. It is also recommended to check payroll software or systems to ensure they are set up to change the contribution rates from 1 July 2021.
A question which is frequently being asked is what effect the super increases have on employees’ salaries. Where an employee is being paid a salary exclusive of superannuation, their base salary should remain the same, but the superannuation contribution will increase, meaning an overall increase to the employee's total package value.
If the salary is expressed as being inclusive of superannuation then, depending on the exact wording of the contract, it means the overall package (base salary + super) remains the same when the super rate increases, but for the base salary to the individual will be reduced. In this circumstance there would be no additional financial cost on the employer, however, the employee would see a decrease in their take-home pay.
Given the current market and industry standards, we are seeing the majority of employers who have package rates increase the package to ensure no reduction of base salary to the employee. Going forward, because we know super rates will increase over the next few years, employers may wish to revise current employment contracts to ensure their documentation reflects the approach they intend to take with regards to package values.
There is another superannuation change that is less publicised which impacts businesses and the process for onboarding new employees. From 1st of November 2021 employees’ existing superannuation accounts will be ‘stapled’ to them. Currently, employees’ super contributions go to the employer’s default fund unless employees complete a superannuation standard choice form. Under the new changes, if an employee does not nominate a choice, employers must find out from the ATO if a new employee has an existing super fund, and, if so, make payments to that existing fund. A default fund will only be able to be used if the employee has not nominated a preferred fund and does not have an existing fund.
It was also announced in the federal budget that from 1st of July 2022 the rule currently states that employers do not have to make superannuation contributions unless an employee earns at least $450 per month (subject to more generous provisions in a modern award) is being scrapped.
You can find more information on the Australian Government Federal Budget Fact Sheet here
If you have any questions or need any help please email us at info@becomesydney.com.au or info@becomemelbourne.com.au