From this new financial year, the superannuation guarantee has increased from 9% to 9.25%, an increase that will affect the vast majority of Australian employees and employers.
The increase to the minimum compulsory superannuation contribution rate, from July 1st, 2013 may seem like a good idea but the main question is who will have to pay this compulsory increase – employers, or their employees?
Some employees carry the cost with a drop in pay
In many cases, it seems it will be the employee who will have to shoulder the increased cost, meaning a .25% drop in their take home pay every month.
This is because an estimated 44% of the Australian workforce is under a fixed remuneration package inclusive of super, as stipulated by their employment contract. Because their package is inclusive of super, their employers are under no obligation to increase their pay to ensure they receive the same amount of take home pay as they did prior to the increase. The cost of super contributions by their employer has stayed the same, but because the employee’s super contributions will actually rise from 9% to 9.25%, this in turn reduces their take home pay by .25%.
For example, a worker on a total salary package including super of $60,000 a year would receive $2.88 less in their take home pay each week, because an extra 0.25 per cent of their existing package will go into their super fund.
Of course, not all employees are under a fixed remuneration package inclusive of super. For instance, some are paid a base salary plus superannuation, meaning their employer must pay the .25% increase in super contributions.
The thorny issue of salary sacrifice
Who actually pays for the regular increases in superannuation guarantee entitlements over the next few years, when a salary package is in place gets even murkier when you factor in employee salary sacrifice arrangements?
A salary sacrifice arrangement is when an employee pays a portion of their pre-tax salary to be contributed to their super fund, thus reducing their personal taxable income. Currently individuals who choose to salary sacrifice into their super can lose out on superannuation guarantee entitlements, and nothing looks like being done in the near future to correct this wrong.
For instance, a person who earns $50,000 a year will receive $4,625 in super guarantee contributions. If this employee is doing salary sacrifices of $5,000 for example, then they may only receive super guarantee contributions on the lower salary of $45,000.
Therefore, his/her employer’s annual super guarantee contributions will then be $4,162.50, or $462.50 less than the original arrangement if there was no salary sacrifice in place. The financial impact is quite big if an employee sacrifices salary, and even greater if the employer assumes that the extra 0.25% in super guarantee entitlements is sourced from an employee’s existing package.
This change in super guarantee contributions is the first of a series of annual increases to the minimum rate but it’s expected to be 12% in 2019 – 2020, which makes it even more important to get the grips with your super. Find out more about the impact of the superannuation changes and what it means for you.