Understanding changes to the employer super guarantee

The superannuation guarantee (SG) from employers for eligible employees is to rise from 9.5 per cent to 10 per cent from 1 July this year.

There will be increases of 0.5 per cent each year until the SG percentage reaches 12 per cent from 1 July 2025, as follows.

• 1 July 2020 – 30 June 2021: 9.5 per cent
• 1 July 2021 – 30 June 2022: 10 per cent
• 1 July 2022 – 30 June 2023: 10.5 per cent
• 1 July 2023 – 30 June 2024: 11 per cent
• 1 July 2024 – 30 June 2025: 11.5 per cent
• From 1 July 2025: 12 per cent

For employees

The mandated SG percentage increase (the last was in 2014) does not necessarily mean employees will get a windfall in overall pay from 1 July, as it is dependent on the terms of their employment contract and relevant awards. 

It may be that there is a reduction in an employee’s take-home pay come 1 July to “compensate” for the 0.5 per cent increase in super, where included in the salary package. 

For employers

SG contributions are calculated and paid quarterly by employers based on the SG percentage times ordinary time earnings (OTE). 

OTE is the amount an employer pays employees for their ordinary hours of work pre-tax, including things like commissions and shift loadings, but does not include overtime payments. 

For example, if an employee’s OTE is $100,000 for the 2021–22 tax year, the employer is required to pay $10,000 into their super fund (10 per cent of $100,000).

What about contractors?

It is important to note that some contractors are entitled to SG contributions, even if they have an Australian Business Number (ABN), as shown recently in decisions handed down in Franco v Deliveroo Australia Pty Ltd [2021] FWC 2818 [Fair Work Commission U2020/7066] and Olias Pty Ltd as trustee for the Storer Family Trust and Commissioner of Taxation [2021] AATA 1524.

In the Deliveroo Case, the Fair Work Commission (FWC) ruled Deliveroo was an employer of its delivery riders as it had significant actual – or potential – control over how work was performed, when work was done, and which delivery rider received that work. 

This indicated Deliveroo’s business platform acted like an employer. The FWC also ruled the delivery rider was not carrying on a trade or business of his own, or on his own behalf. 

Instead, he was working in Deliveroo’s business as part of that business and was entitled to employee wages and leave entitlements, and therefore SG.

Similarly, in the Storer Case, the Tribunal found that a music teacher employed under contract was, in fact, an employee and not an independent contractor. 

According to the Australian Taxation Office (ATO), if an employer pays contractors mainly for their labour, they are employees for SG purposes and as their employer, you may need to pay SG for them provided they are paid:

• under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
• for their personal labour and skills; as such, payment is not dependent on achieving a specified result
• to perform the contract work personally (and not delegated to someone else).

What about temporary residents?

Temporary residents (those on temporary entry visas), including backpackers, are also entitled to SG contributions from employers. 

SG contributions are paid after their departure and taxed at the Departing Australia superannuation payment rates of 35 per cent or 45 per cent for temporary visa holders and  65 per cent for backpackers.

Tools to assist employers

The ATO has an online tool to help employers determine whether workers are eligible for SG contributions.

It also has an OTE checklist that shows which employee cost is ordinary time earnings and which is not. Employers can determine employee SG contributions using the SG contributions calculator.

Bill Leung is CPA Australia’s Tax Technical Adviser.