Superannuation Guarantee rate increases to 10% on 1 July 2021
The Superannuation Guarantee (SG) rate as currently legislated will increase from 9.5% to 10% with effect from 1 July 2021 with further increases of 0.5% per year to come from 1 July 2022 until it reaches 12% from 1 July 2025 onwards. The SG rate increases were not affected by the 2021-22 Federal Budget. Accordingly, from 1 July 2021 not only will employers need to update their payroll settings to reflect the 0.5% increase in the SG rate, but importantly both employers and employees will need to consider the potential increased SG costs of these changes going forward.
Impact on employers and employees
The financial impact of the 0.5% increase in the SG rate will depend on the terms of existing and new salary and wage packages.
The effect of the increase on particular salary packages needs to be carefully considered to determine whether the additional 0.5% SG contribution needs to be added on top of the existing salary package (i.e., no change to the employee’s take home pay) or incorporated into the existing salary package amount (i.e. resulting in a reduction of the employee’s take home pay). In addition, employers will need to consider the effect of the increase in the SG rate on relevant employee awards.
Salary sacrifice arrangements
Employers also need to be aware that they cannot use an employee’s salary sacrifice contributions to account for the extra 0.5% of SG. The ordinary time earnings (OTE) base for SG purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement are not treated as employer contributions which reduce an employer’s charge percentage.
Maximum super contribution base and opt-out for multiple employers
The increase in the SG rate to 10% from 1 July 2021 means the maximum super contribution base (i.e. earnings that employers do not have to pay SG on above this limit) will increase on 1 July 2021 to $58,920 per quarter ($235,680 per annum), up from $57,090 per quarter ($228,360 per annum).
The increase in the SG rate to 10% from 1 July 2021 also means that the SG opt-out income threshold will increase to $275,000 from 1 July 2021 (up from $263,157). This allows high-income earners with multiple employers to opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap.
Concessional contributions cap increase
In addition, from 1 July 2021 the annual concessional contributions cap (which effectively limits the annual concessional super contributions for employees) will increase from $25,000 to $27,500. Correspondingly, the total maximum super contribution base will also increase to $275,000 (i.e., $27,500 dividend by 0.10). Employers and employees should ensure concessional contributions are not made beyond this amount as excess contributions may attract higher tax rates and an excess charge.
Employers should review employee agreements and contracts and determine any expected future employee costs. Once determined, employers should then review and update all payroll settings and systems ahead of the increase in the SG rate on 1 July 2021.