SG minimum to increase 10% from 1 July 2021 – are you ready?
The Superannuation Guarantee (SG) rate will increase to 10% from 1 July 2021 under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) and will rise by 0.5% per year until it reaches 12% by FY 2025.
Employers need to start planning now for the change in the superannuation contributions.
Total remuneration package
Where employees are structured on a total remuneration model, employers will need to communicate to staff before 1 July 2021 that their cash salary will decrease to give them time to plan for the change.
For example, if an employee is currently on a total remuneration package of $150,000 (excluding any allowances and non-cash benefits), the current split is:
- Cash gross wages – $136,987
- Super – $13,013
Where the remuneration package is unaltered from 1 July 2021, the split will be amended as follows:
- Cash gross wages – $136,364
- Super – $13,633
Based on the example, the employee will have a reduction in cash gross salary of $623 per annum or $52 per month.
To avoid negative impact to employees, it may be an opportune time to complete salary reviews before 30 June 2021 to ensure the pay increments at least cover the hit to the employee’s cash salary component, provided the business can support the cost and cashflow.
Gross salary plus super
Employees who are packaged on a gross salary plus super arrangement will have no impact on their cash salary, although employers need to factor in the additional wages cost for the superannuation increment of 0.5%. This will mean the total wages costs will increase for other on-costs such as payroll tax, WorkCover.
Maximum Contribution Base (MCB)
The minimum SG superannuation contribution of 10% from 1 July 2021 is also capped to the MCB. The MCB will increase to $58,920 per quarter (FY 2021 $57,090 per quarter). This means the maximum superannuation contribution for an employee earnings more than $235,680 will be $23,568, ($58,920 x 4 = $235,680 x 10%). An employee’s contribution will be limited to the MCB of $23,568 unless the employer chooses to override the MCB cap.
The concessional superannuation cap will also increase from $25,000 to $27,500 for contributions received in FY 2022. This is the first increase in the concessional cap since FY 2017. The concessional superannuation cap covers both employer contributions (including salary sacrificed contributions) and personal contributions claimed as a tax deduction by the member.
How SW can assist
Contact one of our experts below to discuss how the changes to the SG rate may affect your business’ superannuation contributions.
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