Did you know that lower-income earning individuals who earn less than $450 per month are currently not eligible for superannuation guarantee (SG) contributions from their employer?
The $450 per month threshold also applies if an employee has more than one part-time or casual job and they earn more than $450 per month from all jobs combined. It simply comes down to the amount earned per job which can disadvantage many younger or lower-income workers.
But not for long …
The good news is that the $450 threshold will be abolished from 1 July 2022 due to recent legislative changes. This means that all employers will have to pay SG contributions for all employees, regardless of how much they earn per month.
The removal of the $450 per month threshold will benefit an estimated 300,000 people or 3% of employees[1], who are mainly young and/or lower-income and part-time workers, approximately 63% of whom are female[2]. These changes will help these workers start accumulating super earlier as well as help address the gap in super savings between women and men.
The SG payment rate
Under the SG rules, employers must pay a minimum percentage of employee earnings into their super fund. The current rate of SG is 10% of an employee’s earnings and will increase to 10.5% from 1 July 2022.
The SG rate will continue to increase a further 0.5% each year until it reaches 12% from 1 July 2025.
How is SG calculated?
An employer is required to pay SG contributions based on an eligible employee’s ‘ordinary times earnings’ (OTE).
This may seem straightforward, that is, OTE is what an employee earns for their ordinary hours of work. However OTE also includes a range of other earnings which can cause an employer to make mistakes when determining what an employee’s earnings base is.
For example, OTE can also include leave (annual, sick or long service), allowances, bonuses, commissions, shift loadings, but generally doesn’t include overtime payments for work performed outside an employee’s ordinary hours of work.
It should also be noted that any salary sacrifice super contributions will also be included in an employee’s OTE.
For a more detailed list of what payments make up OTE, refer to the ATO’s ‘List of payments that are ordinary times earnings’ page (QC 33860).
Example – how SG is calculated
Frank is an employee earning $90,000 per annum.
Frank enters into a salary sacrifice arrangement with his employer to salary sacrifice $10,000 of his future OTE to super.
Frank will have an OTE base of $90,000, consisting of:
- OTE of $80,000, and
- Sacrificed OTE amounts of $10,000
Frank’s employer will pay him SG as follows:
OTE x 10% = minimum super to be paid
$90,000 x 10% = $9,000 per annum
What if an employer doesn’t pay the SG?
Employers who don’t pay the SG on time (at least quarterly), and to the correct super fund, are liable to pay a ‘superannuation guarantee charge’ (SGC). They also will need to lodge an SGC statement with the ATO.
The SGC amount is more than the super they would be required to pay to an employee’s super fund and is not tax-deductible. An administration fee also applies for each employee, so it’s in the employer’s best interests to pay the required SG on time and in full.
Employees who believe their employer has not made contributions on time and in full, can use the ATO’s web tool “Report unpaid super contributions from my employer” to let the ATO know. The situation will then be investigated by the ATO based on the information provided.
Source:
[1] Estimates based on ATO Single Touch Payroll data for July 2019, provided to the Retirement Income Review, published in the Retirement Income Review – Final Report. Canberra: Commonwealth of Australia, 2020, pp 298, 301.
[2] Ibid, pp 45, 300-301
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