From the 1 July 2021 there will be a number of important changes to they way superannuation works, we explain these below.
Increase of super rate to 10%
As discussed in our previous article, the rate of superannuation contributions is increasing from 9.5% to 10% on 1 July 2021. This comes at a time when many businesses will also see an increase to the minimum wages they pay to employees.
The increase to super amounts is part of a gradual staged increase which will see the superannuation contribution rate rise to 12% by 2025.
The planned changes are as follows:
|1 July 2021 – 30 June 2022||10%|
|1 July 2022 – 30 June 2023||10.5%|
|1 July 2023 – 30 June 2024||11%|
|1 July 2024 – 30 June 2025||11.5%|
|1 July 2025 – 30 June 2026||12%|
How should businesses handle the increases?
Employers should consider communicating the changes to employees and updating any documents that refer to the old rates. We can provide letters to employees for this purpose.
Businesses should also check that their payroll software or systems are set up to change the contribution rates from 1 July 2021.
A question which is frequently being asked is what affect the super increases have on employees’ salaries.
Where an employee is being paid a salary exclusive of superannuation, their base salary should remain the same, but the superannuation contribution will increase, meaning an additional financial burden on the employer.
If the salary is expressed as being inclusive of superannuation then, depending on the exact wording of the contract, it may be possible for the overall package (base salary + super) to remain the same when the super rate increases, but for the base salary to be reduced. In this circumstance there would be no additional financial burden on the employer.
In our view, there will only be certainty that this was what intended between the employee and employer when the contract was entered into if the contract spells out that this is what will happen when super rates increase.
Going forward, in light of the fact that we know super rates will increase over the next few years, employers may wish to revise current employment contracts to provide that super increases are absorbed within the overall salary package. We can provide template clauses for this purpose.
Changes to super contribution caps
There are also changes to super contribution caps (contributions over which are subject to less favourable tax arrangements) as follows:
|Type of Cap||Current Cap||Cap from 1 July 2021|
|Concessional contributions cap||$25,000||$27,500|
|Non-concessional contributions cap||$100,000||$110,000|
What about future changes to superannuation?
In terms of other changes to super coming in the future, another change that will commence on 1 November 2021 is employees’ existing superannuation accounts will be ‘stapled’ to them.
Currently, employees’ super contributions go to the employer’s default fund unless employees complete a superannuation standard choice form. Under the new changes, if an employee does not nominate a choice, employers must find out from the ATO if a new employee has an existing super fund, and, if so, make payments to that existing fund.
A default fund will only be able to be used if the employee has not nominated a preferred fund and does not have an existing fund.
It was also announced in the federal budget that from 1 July 2022 the rule which currently states that employers do not have to make superannuation contributions unless an employee earns at least $450 per month (subject to more generous provisions in a modern award) is being scrapped.
Need further help?
If you need further help on any of the matters raised in this article please contact EI Legal.