Are you ready for the Super Guarantee increase?

From July 1, 2013 employees will receive 9.25% compulsory superannuation and this amount will increase gradually  to 12% on July 1, 2019. This is great news for an employee’s super balance, but who will pay?  Either the employer takes the change as a direct, and potentially huge, increase in wage costs, or it convinces its employees to see the increases as part of the normal pay increases they will be expecting over the next seven or so years.In addition to increasing the level of SG contributions to 12%, the legislation also removes the age limit on SG contributions. Presently, SG is not required for an employee who is aged 70 or more.

Schedule of increases in the level of SG contributions

Year starting on    Super guarantee
1 July 2013    9.25%
1 July 2014    9.5%
1 July 2015    10%
1 July 2016    10.5%
1 July 2017    11%
1 July 2018    11.5%
1 July 2019 and after    12%

Minister for Employment and Workplace Relations Bill Shorten insists that, rather than constituting a ‘tax on business’, the super increase will be covered by ‘deferred wage increases’ worked out between employers and employees during wage negotiations.

The real challenge for HR departments, then, will be in communicating the change. Will they build the SG increase into the overall wage increase each year? This will depend on how well they can communicate to staff that super is, in fact, part and parcel of their remuneration. The challenge will be greatest in companies or industries where pay is usually expressed and perceived to be net of super.

A recent survey revealed that 95% of workers believe that job salaries should be advertised as base salary figure plus super and not as a total remuneration package. For most employees, super is seen as an “obligatory payment” from the employer rather than a legitimate component of a salary package.

This would suggest that it’s going to be an uphill battle for employers to convince workers (especially young ones) that their future wage increases will include a superannuation component, when most people only look at how much hits their bank account every pay period..

Another challenge for HR professionals is that the attitudes towards superannuation can vary greatly across industries. In the traditional white-collar industries of banking and accounting there is a better understanding of total remuneration packages as being an overall cost to the employer whereas other industries such as tourism and hospitality there is a focus on cash and super is barely on the radar.

There is no denying that the impact of these changes can be huge for businesses and yet, according to a survey by Aon Hewitt, many employers have not yet fully considered the effect it will have and have also not prepared themselves to avoid fines for non-compliance.

Aon Hewitt questioned 160 Australian companies about superannuation, which produced these interesting results:

  • 58% of employers were yet to determine their response to the SG hike
  • Of the 29 per cent of companies currently paying above the SG, only 11 per cent planned to stay the same amount ahead of the minimum when it went up, whereas 32 per cent expected to absorb the increase

Aon Hewitt senior consultant and actuary Ashley Palmer said “”Broadly speaking, those who use a remuneration packaging method may be passing the cost on to employees, while employers who use the base-plus approach will be bearing the increase themselves,”

So, what to do now?

  • If not already accounted for, the increases will need to be factored into your business’ budgets going forward.
  • Start thinking about how the increased level of SG contributions will affect remuneration packages from 1 July 2013
  • Consider any implications for employment agreements and remuneration packages, and this may require employers to review all staff contracts. Employers may need to seek legal advice in this area.
  • Ensure that their payroll systems are configured to remit the increased contributions to each employee’s superannuation fund.
  • Consider any older workers aged 70 or more, as SG contributions will need to be made for them from 1 July 2013.
  • Be mindful of the concessional cap of $25,000 which from 1 July 2012 applied to all employees.

Article by Mark Sablatnig, Manager, Prosperity Wealth Advisers Pty Ltd.  Mark provides solutions about corporate super, group insurance and employee benefits to our clients from offices in Brisbane, Sydney and Newcastle.