Unpacking the Superannuation Pay Rise and Its Impact on Your Income

KEY TAKE OUTS

• In 2021, the Government announced incremental increases in superannuation from 9.5% to 12% by 2025.
• From 1 July 2023, employers were legally required to increase the current superannuation contributions made on behalf of their staff by 0.5%. The current rate of compulsory superannuation is now 11%.
• Employees on existing remuneration packages should review their employment agreements to work out whether their employer is permitted to reduce their take-home pay to fund the increased super.
• Employers are required to fund the superannuation increase for employees who do not have employment agreements that allow the increase in super to be taken from their remuneration package.

The life expectancy of Australians has dramatically improved in the last century. In 2020, Australia enjoys one of the highest life expectancies in the world, currently 83 years. To accommodate people who are enjoying a longer retirement period, the Government announced mandatory incremental increases to superannuation in 2021 with the aim of reaching 12% by 2025.

Am I eligible for Superannuation Guarantee?

If you’re an employee, you are typically entitled to compulsory superannuation (super) contributions from your employer. These super guarantee (SG) contributions must be a minimum amount based on the current super guarantee rate of your ordinary earnings, up to the ‘maximum contribution base’.

From 1 July 2022, employees are entitled to compulsory super guarantee contributions regardless of how much they earn if they satisfy all other eligibility requirements including if they are full-time, part-time, casual or temporary residents of Australia.
Employees under 18 years old are required to work more than 30 hours per week to be entitled to super contributions from their employer.

What is the current Super Guarantee Rate?

As of 1 July 2023, employers are required to contribute a minimum of 11% of an employee’s ordinary rate up to the ‘maximum contribution base’ of $62,270 per quarter.

How will this affect you?

Employees who receive their super in addition to their base rate pay should notice the increased super into their accounts from 1 July 2023, as employers are required to pay their contributions into their employee’s nominated account at least every 3 months (quarter).
Whilst employees in these types of employment agreements are not required to do anything as employers bear the responsibility to make the necessary changes to their payments, it is sensible to regularly check your super fund to ensure it is up to-date and accurate.

Employees that are on a superannuation-inclusive salary package should review their employment agreements as their take-home pay may be immediately affected by the super increase. A superannuation-inclusive salary package is an employment agreement between the employer and employee that packages your base salary together with remunerations such as superannuation, car allowances and/or bonuses. The take-home pay of these employees is affected by the legislative increase of super as their salary package absorbs the increase and reduces their take-home pay to fund their increased super if they do not have an agreement in place to permit the employer from doing so.

While employers who have employees on superannuation-inclusive salary packages are not required to increase salaries to compensate for the compulsory super increase, the legality of funding the additional super out of a person’s take-home pay will depend on the wording of the individual’s employment contract and the discretion of their employer.

If an employer decides that they are changing their employee’s take-home pay, it is strongly encouraged that employers communicate this to their employees to avoid complaints or queries, given the increased cost of living and the 0.5% reduction in an employee’s take-home pay which may cause financial stress on their staff.

As the increases in superannuation are scheduled on 1 July each year, this may coincide with pay reviews for different organisations. If this is the case, we recommend employers and employees use this opportunity to discuss any enquiries to manage the issue of increased super contributions.

How can we help?

Employers should avoid deliberately drafting their employment contracts to avoid paying superannuation increases. Employers should seek the assistance of Coutt’s Employment Law team when it comes to drafting employment agreements and determining their obligations relating to increasing super contributions. The Coutt’s Employment Law team can also assist employees who are unsure whether their employer is paying them correctly or require assistance negotiating a change in the terms of their contract.

As super-inclusive provisions are just as important as other contractual terms, we strongly recommend you get in touch with one of our specialised employment lawyers to discuss any uncertainty regarding the interpretation of your contract.

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