Possible Delay to Superannuation Guarantee Rate Increase: Employers Should Still Prepare

Frozen at 9.5% for the last six years, discussion has fired up about the superannuation guarantee (SG) increase this July. The SG rate is scheduled to increase by 0.5% to 10% on 1 July 2021, with incremental increases to 12% by 2025. However, it remains unclear whether all the increases will be implemented. Federal Government Treasurer Josh Frydenberg has stated that a final decision concerning the increase will be made in the May 2021 Budget.

Uncertainty surrounding the scheduled increase grew after the Australian economy was plunged into a pandemic-induced recession in 2020. Accordingly, employers and politicians have argued that during economic recovery post-COVID, it may not be an optimal time for employers to contribute an increased amount to employees’ superannuation. The same groups argue that increases in SG may come at the expense of pay rises for Australian workers.

The Federal Government has been receptive to the issues around the scheduled SG rate increase. Minister for Superannuation Jane Hume says that although the superannuation rise has been legislated to occur, “the Prime Minister must consider the economic circumstances” of our current climate post-COVID before making a decision on the SG increase.

Proponents of the SG rate increase warn that any delay could cause more harm than good. In response to economic strain imposed by the pandemic, the Federal Government enabled the option for Australians to withdraw from their superannuation accounts. Estimates show that more than $33 billion has been already withdrawn from superannuation accounts, and it is estimated that approximately 590,000 Australian have ‘completely cleaned out their retirement savings, the majority of them under the age of 35’ says Shadow Treasurer Jim Chalmers.

“Now more than ever, Australians need the legislated increase in the super guarantee to rebuild their retirement balances,” Mr Chalmers said.

Issues for Employers to Consider

In the absence of any change to the current law, here are a few key things for employers to consider in light of the prescribed SG rate increase this year.

To meet SG obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth), employers will be required to contribute an additional 0.5% to employees’ superannuation if the increase occurs on 1 July 2021.

Employers will need to plan how the SG rate increase will be communicated to employees, and how the increase will be implemented, which will depend on the nature of the employer’s employee remuneration scheme.

For example, if employees receive a superannuation-inclusive remuneration package, employers will need to explain to employees that due to the increase in the SG rate, their take-home net payments may be reduced as of 1 July 2021. However, should employers consider implementing a pay increase to ensure employees’ wages are not impacted by the SG rate increase, this must be budgeted and communicated appropriately with relevant stakeholders and employees and, in some circumstances, might require variation to contracts of employment.

For employees that receive SG contributions on top of their net income, employers will need to account for the new SG rate payable when budgeting for upcoming employee benefits. It is recommended that employers also consider their existing payroll system capabilities and the implementation of necessary adjustments to accommodate for the SG rate increase. There might also be terms in individual contracts of employment or relevant enterprise agreements that employers will need to specifically consider.

Notwithstanding the potential delay of the SG rate increase this July, employers must consider how the legislated increase will impact employee remuneration arrangements from 1 July 2021 onwards and plan accordingly.

If you have any questions relating to the prescribed SG rate increases set for 1 July 2021, please do not hesitate to contact Nick Stevens, Luke Maroney, or Daphne Klianis. Stevens & Associates Lawyers will keep clients up to date on any further developments on the SG rate changes.