The level of minimum compulsory employer superannuation contributions is set to rise over the next 7 years
The Superannuation Guarantee (Administration) Amendment Act 2012 (Amendment Act), which was assented to on 29 March 2012, is set to come into operation on 1 July 2013. Employers should be reviewing their employment agreements to assess whether the increases can be absorbed.
The Amendment Act provides for increases in the level of compulsory employer superannuation contributions from the current level of 9% to 12% by 2019/20.
The increases will be phased in over the 7 year period, in accordance with the following timetable:
1 July 2003 – 30 June 2013 9%
1 July 2013 – 30 June 2014 9.25%
1 July 2014 – 30 June 2015 9.5%
1 July 2015 – 30 June 2016 10%
1 July 2016 – 30 June 2017 10.5%
1 July 2017 – 30 June 2018 11%
1 July 2018 – 30 June 2019 11.5%
1 July 2019 – and onwards 12%
Also, the age threshold for when an employer can cease paying compulsory superannuation contributions on behalf of an employee will increase from 70 years of age to 75 years of age.
What does this mean for employers?
The commencement of the Amendment Act will mean increased costs for some employers.
The Amendment Act does not deal with the offsetting or absorption of the additional superannuation contributions.
Whether or not you can offset or absorb the additional contributions into an employee’s annual salary will largely depend on the wording of their contract of employment.
For example, if your employee’s salary is expressed in terms of base salary plus super, you cannot offset the increases against base salary without reducing the employee’s take home pay.
However, if your employee’s salary is expressed as a total remuneration package, inclusive of superannuation, you may be able to absorb the increases, subject to any minimum wage obligations.
If your employees are covered by an enterprise agreement, the wording of the wage rates clause will determine whether you can offset or absorb the increases during the life of the enterprise agreement.
What can employers do to minimise the impact of this increased cost?
Employers should be reviewing their employment arrangements in order to prepare for the coming increases in the compulsory superannuation contributions.
This may mean amending your employment agreements to allow for the offsetting or absorption of the increased employer contributions.
Careful drafting is required to ensure that you can lawfully offset or absorb the increases, and still comply with any minimum wage obligations in a federal award (if applicable).
For more information, please contact a member of our Employment and Workplace Relations team on (03) 8600 8888.
Note: This update is a guide only and is not intended to constitute legal advice.