From 1 July 2013, the Superannuation Guarantee Charge Percentage increases from 9% to 9.25%. The Charge Percentage will incrementally increase each financial year thereafter until it reaches 12% by 1 July 2019. Employers must be aware of these changes to ensure they comply with their obligations under the Superannuation Guarantee Scheme (SGC) laws.
Employers must make a quarterly super contribution for each employee. The minimum contribution is the applicable Charge Percentage multiplied by the employee’s eligible ordinary time earnings for the quarter (up to a maximum level of earnings per quarter, currently $45,750). If an employer fails to contribute the prescribed minimum amount into super, the employer is liable to pay the shortfall, plus interest and an administrative charge.
Who bears the cost of the increase – employers or employees?
So if employers have to pay higher superannuation contributions from 1 July 2013, who bears the cost of this increase? The SGC legislation makes no provision for how this cost is funded. It does not prescribe whether the employer must pay more remuneration by way of higher super contributions, or whether the employee bears the cost in the form of reduced ‘after tax’ pay. The answer will depend on the terms of each employee’s employment agreement or any incorporated policies.
In simple terms if the employee’s remuneration is expressed to be exclusive of any super contributions, then the employer must bear the cost of the increased super payments (to avoid having a shortfall under the SGC legislation). If it is properly drafted and expressed to be inclusive, then the increase will instead be borne by the employee.
Review your employment arrangements now
It is important employers are clear on their obligations both under the SGC laws and in their employment arrangements. By 1 July 2019, the difference between an inclusive and exclusive term for an employee earning $100,000 per annum, can mean the employer having to pay an additional $3,000 per annum for that employee. Terms that are vague, unclear or ambiguous could cost a lot more (taking into account costs associated with a dispute).
It is imperative employers act now before 1 July 2013 to have their positions reviewed and prepare for these changes. Depending on the terms of your employment arrangements (contracts and policies), employers may need to negotiate new terms with employees so future SGC increases do not leave employers out of pocket. Where your arrangements are vague or uncertain this should be immediately addressed (as uncertainty in terms often falls in favour of the employee). It may also then be an opportune time to do a general health check (audit) of all your employment arrangements.
For further information or to discuss having your employment arrangements reviewed, please contact: