22 March 2021
Despite increasing pressures from some sections of government, commerce and the media to pause the impending increase in the superannuation guarantee (SG) rate, in the absence of a change to the law, from 1 July 2021, the prescribed SG rate is currently scheduled to increase to 10 per cent (from the current rate of 9.5 per cent).
This increase will require employers to contribute an additional half per cent to meet their SG obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA).
In the absence of a change to the law, employers should start planning how this SG increase will be implemented and communicated, which will depend on their employee remuneration structure (i.e. those on superannuation-inclusive package arrangements versus those who are paid superannuation on top of cash income). Where an employer’s superannuation obligations also includes separate entitlements under contract, industrial instrument and/or employer remuneration policies, the augmentation of those entitlements against the increased SG obligation should also be considered.
In addition, for employers who make compulsory employer superannuation contributions to a superannuation fund under, or in accordance with, a workplace determination or an enterprise agreement, new law now ensures employees operating under workplace determinations or enterprise agreements made on or after 1 January 2021 will be able to choose their own superannuation fund.
The minimum SG rate is currently legislated to gradually rise from 9.5 per cent to 12 per cent over the next five years as set out in the table.
|Year starting 1 July 2020||9.5%|
|Year starting 1 July 2021||10%|
|Year starting 1 July 2022||10.5%|
|Year starting 1 July 2023||11%|
|Year starting 1 July 2024||11.5%|
|Year starting on or after 1 July 2025||12%|
We outline below some of the issues that employers should consider in the context of the increase to the SG obligations from 1 July 2021.
Employees remunerated under a superannuation-inclusive package
Where an employee is remunerated through a superannuation-inclusive package, in the absence of a remuneration review, their take-home cash payments will likely reduce from 1 July 2021. As such, we recommend employers consider communicating the potential decrease with their employees as early as possible to avoid any queries or complaints arising.
Alternatively, where employers are considering implementing a pay increase to ensure consistency in take-home cash payments, this will need to be appropriately modelled, budgeted and communicated.
Employees receive SG contributions on top of their cash income
Similarly, employers will need to incorporate the increase in SG payable in budgeting for upcoming employee benefits, where an employee's SG is paid on top of their cash income. This budgeting will also need to factor in the overall cost impact where there are increases to underlying pay (for example, salary/wage increases), noting that this will result in a dual increase to both superannuation and cash income.
Non-SG superannuation entitlements exist under contract, industrial instrument and/or policy
For employers which have increased/differing superannuation obligations arising from non-SGAA sources, the interaction of those obligations with the changing SG rate will need to be reviewed. For example, where non-SGAA obligations build on the SG rate (for instance, X% on top of the SG rate), this will require planning and employee communication, including the aforementioned considerations with respect to superannuation-inclusive or exclusive income. Where non-SGAA obligations are static (i.e. do not increase in concert with the SG rate), employers should ensure appropriate testing to confirm that those obligations continue to cover SGAA entitlements.
Payroll system capabilities
To ensure the increase in SG rate runs smoothly, we recommend employers clarify with their payroll provider prior to 1 July 2021 how the change will be implemented in the payroll system, including conducting testing and exception reporting prior to July 2021.
New superannuation choice rules
As a result of the enactment of new law (Treasury Laws Amendment (Your Superannuation, Your Choice) Act 2020), new workplace determinations and enterprise agreements made on or after 1 January 2021 must ensure employees have the right to choose their superannuation fund (i.e. there will no longer be an ability to not choose a superannuation fund based on a fund nominated within a workplace determination or enterprise agreement). Note, there are limited exceptions with respect to employees who are existing members of certain defined benefit schemes.
New employees subject to a determination or agreement must be provided with a standard choice form (noting that if there is no chosen fund for a new employee, the default fund arrangements apply). Employers do not have to provide existing employees with a form unless requested once a new determination or agreement is made.
Where there is no chosen fund for an existing employee, an employer that continues to make compulsory contributions for that employee with the same fund, in accordance with the previous determination or agreement, will comply with the choice of fund requirements.
Employers which have historically been able to rely on fund nominations under a workplace determination or enterprise agreement will need to consider the process and communication updates required with respect to the updated choice provisions. Further, for employers which have relied on defined benefit fund schemes noted in such instruments historically, they will also need to consider the potential application of the limited exceptions, where relevant.
The recent and upcoming changes to apply the superannuation law reiterates the continuing policy focus on ensuring individuals have enough retirement savings for the future.
With only a few months remaining of the current financial year, employers should start planning and preparing for how the currently scheduled SG increase will impact their employee remuneration arrangements from 1 July 2021.
Additionally, for any current or upcoming workplace determinations and enterprise agreements negotiations, particularly in industries which have historically relied on fund nominations within these instruments with respect to choice, employers should ensure that the relevant superannuation clauses appropriately cater for the revised choice provisions (including ensuing process and employee communication).
Partner, PwC Australia
Tel: +61 (3) 8603 3149
Australia and Asia Pacific People & Organisation Tax Leader, PwC Australia
Tel: +61 2 8266 5864
Partner, PwC Australia
Tel: +61 (3) 8603 6818
Partner, Integrated Infrastructure, ACT Leader, Canberra Managing Partner & Global Trade Lead, PwC Australia
Tel: +61 (2) 6271 3414
Partner, PwC Australia
Tel: +61 2 8266 8172
Partner, PwC Australia
Tel: +61 (7) 3257 5751