Super Guarantee to increase to 10% on 1st July 2021
The minimum percentage employers must pay set to increase over time, with the subsequent increase to 10% due on 1st July 2021. This should be considered, in part, a wage increase. Any change to defer this scheduled increase would most likely be announced in the May 2021 Budget.
What this Means for Small Business
The proportion of wages that employers must contribute to their workers’ superannuation is legislated to increase by half a per cent a year before reaching a final value of 12 % by 2025.
The superannuation guarantee is paid in addition to the base salary. For example, suppose an employee’s contract is $60,000 plus super, as an employer. In that case, you will pay a gross income of $60,000 to the employee (less personal income tax withheld) and then make an additional $5,700 superannuation guarantee (or 9.5% of the base salary) to the superannuation fund. This worker’s total income (salary plus super contribution) is $65,700.
When the superannuation guarantee increases to 10%, an employee’s base income does not change (you are not permitted to decrease the base income). The employer will be required to make an additional $300 contribution to the employee’s superannuation fund (a total of $6,000). The worker’s total income is now $66,000.
When the compulsory SG contribution level has increased, a business will need to adjust its payroll systems to pay the increased amount of super. If they don’t pay the correct SG rate into employees’ super accounts by the quarterly due date, they may have to pay the Superannuation Guarantee Charge (SGC).
Manage Cash Flow
With the increase in compulsory super contributions coming out of the same business budget as wages and all other on-costs such as workers compensation, payroll tax, PAYG and superannuation, businesses need to plan ahead to ensure they can afford the ongoing costs of superannuation increases.
This pending increase and all future increases need to be built into a business budget to be considered part of wage increases over time. The best practice is that it is better to overestimate than underestimate
Accurate and up-to-date financial records will help a business manage cash flow. By regularly reviewing your business’s performance, the business owner, Bookkeeper, and Tax Agent can address financial problems immediately.
Assess the total employment costs of the business and add a percentage on top of the total costs to cover not just the rise in superannuation but also any miscellaneous expenses and unforeseen blowouts.
Every employer’s obligation to pay superannuation will increase as of 1st July 2021 (subject to any Government announcement). This is an increased cost to the business that must be considered for cash flow and budgeting purposes.