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The superannuation guarantee (SG) is legislated to increase from 9.5% to 12% in 0.5% increments from 2021 through to 2025. The first of those SG increases is due to take effect on 1 July 2021.  As this change is fast approaching, employers need to consider how this will impact the remuneration arrangements of their employees.

A short history of employer SG contributions

Compulsory employer SG contributions were introduced in 1992. From that point onwards, superannuation or “super” to many, has formed the foundation of employees’ retirement income.

Initially the minimum SG contributions were set at 3% of income with set increases to lift the minimum to 12% by 2011. However, over time the major parties have intervened to both freeze (Coalition) and mandate (Labor) the planned increases. 

Most recently, in a policy taken to the 2019 federal election, the Coalition pushed out the timeframe to achieve 12% until 2025.

Despite complaints, mainly from employers and industry groups, the increases will now occur with effect from 1 July 2021. It appears the Government has decided not to abandon or further delay the increases for reasons including that this could expose the Government to criticism of disadvantaging women in the workforce.

The planned SG increases

The 0.5% incremental increases in the SG percentage are mandated as follows:

Period

Superannuation guarantee %

Up to 30 June 2021

9.5%

1 July 2021 to 30 June 2022

10%

1 July 2022 to 30 June 2023

10.5%

1 July 2023 to 30 June 2024

11%

1 July 2024 to 30 June 2025

11.5%

1 July 2025 onwards

12%

What does this mean for employers?

The impact to employers of the increase in the SG percentage will largely depend on how its employment arrangements are structured; what is provided for in employment contracts, enterprise agreements and modern awards. There are three main possibilities.

Manner in which salary and SG are dealt with in an employment arrangement

Steps to be taken by the employer

Impact on employer

  1. Employment arrangement provides the employee is to be paid their base salary plus the minimum SG contributions.

Employer must make the increased contributions, but isn’t required to amend the employee’s contract to reflect the higher SG percentages.

Higher payments cover the increased SG percentages, but no change to the employee’s base salary.

  1. Employment arrangement provides that the employee is to be paid their base salary plus a specified % for SG contributions (e.g. 9.5%).

Employer must make the increased contributions and should update future employment contracts to reflect the “minimum level required” rather than a set %.

Higher payments cover the increased SG percentages, but no change to the employee’s base salary

  1. Employment arrangement provides for a total remuneration package including SG contributions.
No change required as increase will be absorbed within the package rate, subject to the new base salary component satisfying any applicable minimum rate of pay. No direct financial impact, however, consideration of the impact on employee moral (i.e. of an effective in-hand wage reduction) would need to be considered.

Final thoughts

Employers should be aware of the impending changes to SG contributions and review the employment arrangements of their employees to determine the impact of the increases in SG contributions, and what changes need to be made (if any) to those arrangements.

Unilateral changes to the arrangements of employees (i.e. those made outside of the permitted terms of the arrangement or without the consent of an employee) could give rise to claims for damages for breach of contract, unfair dismissal or general protections (adverse action) claims under the Fair Work Act 2009 (Cth), where an employee resigns or is dismissed because they refuse to accept the employer's unilateral action.

Further information

Please contact our Workplace team  if you wish to discuss further or have any questions arising from this article.

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