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Upcoming Increases to Minimum Superannuation Guarantee Rate

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By Chao Ni, Associate, Mason Sier Turnbull

Effective from 1 July 2013, the first of many incremental increases to the minimum superannuation guarantee (SG) rate, currently 9% of wages, will take effect.  The SG rate is payable by all Australian employers.

The expected increases to the minimum SG rate are set out in this table below.

Financial Year Minimum SG Rate
2013/2014 9.25
2014/2015 9.5
2015/2016 10
2016/2017 10.5
2017/2018 11
2018/2019 11.5
2019/2020 12

Employers have two ways to deal with the SG rate increases.

1.  Pay the increased SG rate without reducing employees’ existing take home pay

Many employers will have no choice but to fund the superannuation increase out of their own pocket.  Some employers may make the conscious decision of freezing future wage increases to meet the cost of the increased SG rate.

Employees who are paid the minimum wage rate in accordance with an industrial instrument (e.g. modern award or registered agreement) or alternatively the national minimum wage rate will receive a pay increase each July as a result of the National Minimum Wage Order made by the Fair Work Commission.

2.  Pay the increased SG rate and reduce the employee’s take home pay

In most cases, employers cannot unilaterally reduce their employees’ take home pay to fund the SG rate increase.  However, it is possible to reduce an employee’s take home pay if there is a contractual arrangement permitting this to take place.

Example: Bill enters into an employment contract during the 2012/13FY that provides for a $109,000.00 remuneration package which is inclusive of superannuation, having regard to any future SG rate increases.  From 1 July 2013, Bill’s total package will still be $109,000.00 but the underlying salary versus superannuation components will change.

Any agreed reduction in take home pay through a contractual arrangement must not be in contravention of any applicable industrial instruments such as modern awards and enterprise agreements.

Steps to Take

In preparation for the upcoming increase in the minimum SG rate, it is recommended that employers take the following steps:

  • Revise business budgets to take into account increased payroll costs.
  • Update payroll and accounting systems to apply the correct SG rate from 1 July 2013, and thereafter for the relevant years following.
  • Review employment contracts to explore how remuneration packages can be used to cushion future SG rate increases.

For more information on this article, please contact the Mason Sier Turnbull’s Workplace Relations team on (03) 8540 0200.