Is your business prepared for the upcoming super contribution hike?
With 2018 on its way out, SMEs only have two years to prepare for the upcoming increase in Superannuation employer contributions that will occur in July 2021. During this time Superannuation contributions made by employers will increase from 9.5% to 10%. However, this isn’t the only expected increase in the future, it will dramatically increase again in July 2025 to 12%.
So how can businesses ensure they stay afloat with these changes?
Examine how as an employer you structure superannuation payments to staff
Employers have a choice in how they structure superannuation contributions in their employee’s remuneration. It can be paid in two ways:
- Base Salary Plus Super Model – the total payment increases as the compulsory super rate rises.
- Total Remuneration Model – the total payment stays the same, despite the compulsory rate increasing, but your employee’s take-home salary would decrease to account for the increased super contribution.
Does this mean I have to pay more when the super contribution increases?
If you pay super contributions under the base salary plus super model, the base salary will not increase, but the amount of super for each employee will. You, as an employer will have to pay more when the compulsory super increases.
Under the total remuneration model, you will not have to incur additional costs because the total amount paid does not change. What does change is an employee’s take home wage as this will decrease to compensate the increase in super contribution.
How do I know which model applies to my staff and what action I should take?
To work out which model applies to your staff, check the remuneration provisions in each of their employment contracts. If an employee’s contract states they will be paid base salary plus super, when the compulsory super rate increases, you will need to increase the super contributions you make. If an employee’s contract states they will be paid a total remuneration or wording that allows the overall remuneration to stay the same when the super rate increases, you won’t need to do this.
Can I change how I pay my staff from a base salary plus super basis to a total remuneration basis?
Yes, you can do this to avoid increases costs, but you will need very well-drafted remuneration provisions in your employees’ contracts. They should state the following clearly:
- what the employee’s total remuneration is going forward
- that the total remuneration now includes base salary and compulsory super
- that the compulsory super rate is scheduled to increase over time
- when the compulsory super rate increases, the employee’s total remuneration will stay the same and the base salary will be reduced to enable this.
What do these changes mean for my business?
Depending on how your employees’ remuneration is structured, you could be forced to pay additional costs to remain compliant with compulsory superannuation contributions.
For employees, their base salary could be reduced if they are forced to move to a total remuneration basis. It will be crucial for both employers and employees to keep open communication on what is basis is best and balance the needs of the workers as well as keeping costs down.