As announced this week in the Federal Budget, the current Super Guarantee is scheduled to increase from 9.5% to 10% on 1st July 2021. This rate determines the amount of money that employers have to contribute to an employee’s super account as a percentage of their wage. This rate has been frozen at 9.5% since 2014.
These changes would be risky at any time, but are especially tricky now given the severe economic impacts of the Covid19 pandemic. An extra half a per cent of salary into super each year brings with it a variety of ways for the employer to respond. They could shave each of the next five annual wage increases so that they won’t end up paying more, or it could eat into profits (which is difficult at the best of times, but made worse if struggling to survive). Unfortunately, due to the current state of the market, economists do not rule out the possibility of letting go of staff to meet these new obligations. And to top it off, the November Retirement Income Review found that the majority of Australians will not benefit significantly from this increase in comparison to the original projection of their super amount at retirement. This review found that if increases in compulsory super to 12% proceed as planned, the bottom one third of retirees will actually get more than they were paid while working. While businesses are still recovering economically from the pandemics effects, so are people.
While wage growth has been almost stagnant over the past few years, the Chair for the Retirement income review, Mike Callaghan, states “All of the evidence suggests that increases in the SG do come at the expense of future wages growth.”
So, what needs to be done?
It is important to review employment agreements and the particular wording used in order to comply with this rate increase. Any individual agreements with an SG rate of more than 9.5%, but less than 10%, must be reviewed. This also impacts remuneration packages which will also need a refresh. For workers with employment agreements containing a base salary plus superannuation, a 0.5% increase must be implemented to both the overall wages and super contribution. On the other hand, the base salary of employees with a salary package encompassing super will decrease by 0.5% in order to transfer super contributions.
These changes do, however, provide a good opportunity do some housekeeping, and to ensure that your super obligations have been met (including super payments and calculations). While employers are primarily focused on making ends meet at the moment, the importance of providing human friendly workplaces cannot be ignored. It is essential for employers to address these super changes in a way that does not penalise employees and to comply with regulations; as we know, a business will thrive when their employees are thriving alongside them.
We know these changes can create complexities given businesses are in a period of economic recovery and uncertainty. If you have any questions about contracts, remuneration, or communicating these changes with employees, reach out!