The government has announced that superannuation guarantee rate will increase from 1 July 2021 to 10%. If you’re a business owner, you may wonder if it means extra cost to your business. On the other hand, if you are an employee, you may want to know how it may affect your salary packaging arrangement.
What exactly is the superannuation guarantee?
The superannuation guarantee (SG) is the minimum amount that an employer must pay into an eligible employee’s superannuation fund. The amount is a percentage of the employee’s wages. The ATO has useful guides about superannuation, both for employer and employees, contractors or sole traders.
The current rate of 9.5% has remained since July 2014, even though plans to increase the rate to 12% have been in place for some years. From 1 July 2021, the rate will rise to 10%. From then on, it will increase by 0.5% every year until July 2025 when it will reach 12%.
Prior to the delayed 2020 Federal Budget, there was a discussion about deferring the rate rise because of COVID-19. However, the government has postponed the rate rise from 2018 to 2021. For now, it looks like the plans to increase the rate each year remain in place. You can check out the summary of the 2021 Federal budget in our blog.
How to prepare for the superannuation guarantee rate rise
- Review your current superannuation costs for all employees.
- Calculate your revised payroll costs from July 2021, showing the comparison between the current costs and the new costs with increased rate.
- Communicate the superannuation rate increase with your employees now.
- Review any salary packaging arrangements in place.
- Ensure your payroll software is setup correctly. Check the superannuation guarantee amount when processing your first payroll in July.
If you have or plan to have a salary packaging arrangement in place:
- Review the salary packaging arrangement. Is the agreement inclusive of superannuation or is super paid on top of the agreed salary?
- For a salary package inclusive of super, check the contract wording to make sure you (or your employer) apply the changes correctly. This change may also impact annualised salary arrangements.
Remember, short payment or late payment of super can incur substantial penalties.
Book a time with us now to talk about your payroll costs or salary packaging agreements. We’ll make sure you have accurate reports to make planning for the rate rise easy.