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Superannuation Changes: What Employers Need to Know
As most employers will know, the superannuation contribution rate is due to increase from 1 July 2021 from 9.5% to 10%. In addition to this increase, last week the Treasury Laws Amendment (‘Your Future, Your Super’) Bill 2021 (the “Bill”) passed which will make a number of changes to current legislation, which will have an impact on how contributions to employee super funds are managed.
Reviewing salary arrangements
From 1 July 2021, the superannuation contribution rate will increase to 10%, which marks the first increase since 2013. According to the legislative schedule, this will progressively increase by 0.5% until July 2025 where the rate will reach 12%.
The increases to the superannuation contribution rate mark an important time for employers to review and, if appropriate, update their remuneration arrangements. For many employers, the increase to the superannuation contribution rate will mean a resultant increase in the overall remuneration paid to employees. However, for those employers who provide employees with a fixed remuneration package which is expressed to be “inclusive of superannuation”, the increase to the superannuation contribution rate may not require an increase to the total package, and may instead result in a reduction in the base salary component for the employee.
The wording and structure of individual contracts, along with any requirements under applicable awards or enterprise agreements will largely determine whether this is a viable option for employers who are considering how to accommodate the scheduled increases. When considering whether to make large scale adjustments to remuneration structures, employers should strongly consider the strategic people management implications of making these changes, such as how employees will react to potential reductions in their “take-home” pay.
Changes to superannuation accounts
As we have previously examined, the Bill amendments include changes to the way that employers are required to manage contributions to employee superannuation accounts. The Bill introduces the concept of “stapled” superannuation fund accounts, which effectively “follow” workers when they change jobs. The purpose of the changes is to prevent the creation of multiple accounts for each employee as they move between jobs. The Bill will also introduce “performance tests” which will expose underperforming superfunds to current members.
The “stapling” process, which comes into effect from 1 November 2021, requires employers to identify a new employee’s superannuation account and contribute compulsory superannuation payments to that existing fund. Employees may opt to change funds when starting their new employment, which may be the standard fund offered by their employer.
- From 1 July 2021, the superannuation guarantee contribution rate will increase to 10%.
- Some employers may be able to incorporate the increase through a reduction in the base pay of the employee.
- Employers should take this opportunity to consider their remuneration structures and how this will impact upon their strategic people management.