As inflation starts to impact the rest of the world with rising fuel and food prices, including Australia, another compulsory superannuation contribution increase is set to take place as of the 1st of July 2022.
Currently, the superannuation guarantee requires employers to contribute 10%, with this figure set to increase to 10.5% on 1 July 2022, in just a few weeks’ time, followed by further staged increases over the next 3 years. In 2023 the rate will increase to 11% and rise to 11.5% in 2024 followed by the end goal of 12% in 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 2022.
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, 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 2022 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.
In addition to the increase in the superannuation guarantee contribution percentage to 10.5%, there are also other significant changes which also come into effect as on 1 July 2022, which businesses should be aware of. Currently, almost all working Australians are eligible for superannuation guarantee contributions, with the current criteria being that the employee must be over the age of 18 and earn $450 per month. From the 1 July 2022 this eligibility criteria will be expanded to be even more inclusive, with employers required to make superannuation contributions for all employees over the age of 18 years regardless of the income earned each month, thus removing the $450 income requirement.
You can find more information on the Australian Government Federal Budget Fact Sheet
How can Become help you?
With these changes taking place, it is important to get on top of them early and understand the changes you will need to make to ensure your business continues to operate effectively and profitably.
Become team of experts have the industry knowledge and expertise, including contracts, salary negotiations, strategic business planning and compliance, to provide you timely and professional assistance to help keep your business on track during these challenging times.
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