By Tina Zawila
You’ve probably noticed superannuation advertising lately letting us all know that our Superannuation Guarantee Contributions (SGC) are about to increase and that we will all be better off in retirement, which is true.
However, where is the money coming from now for us to enjoy later?
Most people are savvy enough to know that nothing comes for free. And the same is true here. This extra super has to come from somewhere – your pocket and/or your employer’s pocket.
On 1st July 2021 employee SGC will increase from 9.5% to 10% of ordinary time earnings (wages/salary). As an employee, will your extra half a percent come out of your existing salary or wages, essentially meaning your take home pay will be lower, or will your employer give you a pay rise of 0.5% which will be contributed to super? This will depend on the employment arrangement you have with your employer (your award or agreement) and it might pay to find out before 1st July rolls around. And if you are an employer, you should consider your position now.
Many employers around the country are still feeling the effects of COVID-19 (especially our friends in Victoria), so whilst 0.5% doesn’t sound like much, extrapolate this across all employees in the business and it quickly adds up!
As to when this year’s increase actually takes place, it is important to note when your pay is due to be paid on/around 1st July 2021. If your wages payment date falls after 1st July, you are entitled to 10% SGC on that full pay run (no pro rata for the number of days post 1 July). So, if you are paid for a week’s pay ending and paid on Friday 2nd July for example, the 10% applies to that full week’s wages, not just the 2 days post 1 July. Think about the effect of this on fortnightly or monthly payrolls paid in arrears – essentially the increase applies before 1st July 2021.
Modern payroll software should take care of this efficiently for employers, however, it’s worth checking in advance that the settings within the software are correct and that the approach to either absorb the increase within the employee’s current salary or apply the increase on top of their current salary is also in accordance with your obligations under their employment arrangement.
It’s also worth noting that the 0.5% increases keep coming year on year through to 2025 when the superannuation guarantee rate hits 12%. So, this issue is likely to replay for the next 5 years.
This is an important issue to be discussed between employers and employees before 1st July 2021, so that there are no surprises for anyone.
If you need advice, as an employer or employee, please contact the professional team at UHY Haines Norton CQ on 07 4972 1300, we would be happy to advise you on your individual circumstances.