Superannuation Guarantee increase poses new risks

This article was current at the time of publication.

Millions of Australians will benefit when the mandated superannuation guarantee (SG) levy rises by 0.5 per cent to 10.5 per cent from 1 July.

Other workers will start receiving super payments for the first time due to the corresponding removal of the $450 per month earnings eligibility threshold.

This marks the second rise in the SG levy, which has been legislated to increase in annual 0.5 per cent increments until it reaches 12 per cent on 1 July 2025.

There is a range of steps all employers will need to take over the next few weeks to ensure they are compliant when the next SG rise comes into effect. Some employees will also need to act.

All employees entitled to super

Any business employing casual staff and contractors paid for their labour will need to start paying them super from 1 July.

It’s important to ensure all casual staff, regardless of their working hours, have an active super fund account ready to receive concessional contributions. This will avoid the business from being liable under the law for non-payment.

“If you’re a small business and you’ve got staff where you’ve never paid them super before, you may need to get in touch with them and advise that they need to make sure their super details are up to date,” says CPA Australia’s Superannuation Policy Adviser, Richard Webb.

“If they haven’t chosen their fund, depending on when they started with the employer, they could use the employer’s fund. Or, if they have chosen a fund but haven’t communicated this to their employer, now is a good opportunity to do so.

“Employees who commenced on or after 1 November 2021 may have a stapled fund, and if they don’t choose a fund, it’s up to the employer to find their stapled fund details from the Australian Taxation Office [ATO].”

Updating payroll systems

The SG levy rise should be relatively painless for employers using payroll service providers or software-based payroll solutions, which automatically adjust for the change. 

However, businesses using manual payroll processes such as Excel spreadsheets will need to ensure they adjust them to the higher rate, including for low-income workers who were not previously entitled to super.

Potential for reduced cash flow

Employees on total remuneration packages that include superannuation may find the extra 0.5 per cent will be taken from their pre-tax salary and reflected in take-home pay.

Therefore, businesses with workers on such packages probably won’t have to direct additional cash into wages.

On the other hand, employees on different types of awards and contracts, as well as other employees employed under a salary arrangement – rather than a total remuneration package – will most likely receive a 0.5 per cent boost to super contributions that will not affect what they take home.

Businesses in this position will need to dip into their cash flow to make the super adjustment. So will businesses that have to make super contributions for the first time to employees such as casuals.

“For a lot of small businesses, there’s likely to be a slight change to their liquidity situation if they’re paying staff more in the way of super and not changing their take-home pay,” Webb says.

Communicating with employees

In the lead-up to the SG levy rise, businesses should ideally advise employees on how the change will impact their salary and super.

That’s especially the case for employees on contracts, who will see a reduction in their take-home pay.

“A lot of employers may not want their staff to have the rude shock of finding the take-home pay paid into their bank account has gone down as a result of the super increase,” Webb says.

“It’s also worth having a chat with staff even if they’re not affected.

The 0.5 per cent increase may, however, push some employees who top up their super through salary sacrificing or additional contributions close to or over the annual concessional contributions cap of $27,500 in the 2022-23 financial year.

“It is possible that if you continue on your current rate of contributions, you might next year through no fault of your own, breach that cap just because you haven’t kept an eye on the extra 0.5 per cent your super’s going up by,” Webb says.

“An employee might want to look at their circumstances to make sure everything’s in order. The tax treatment is different for contributions that come in under the cap compared to those that come in over.”

Avoiding risks

In addition to payroll and liquidity risks, the SG levy has pitfalls that can be easily avoided.

These include the reputational risk to businesses that fail to implement the super rise correctly, the reputational risk with employees, and compliance risks.

Late quarterly payments and short payments of the SG levy are treated in similar ways.

“Anything that’s paid late or short-paid immediately incurs general interest and administration charges,” Webb notes. “Each failed attempt to rectify anything you’ve missed, which the ATO imposes by a variety of requirements, can rachet up costs to the business.

“Ultimately, if nothing is done about it, the business owner can be liable.”