An obligation to pay Superannuation Guarantee (SG) contributions arises where eligible employees have earned over $450 (before tax) in salary and wages in a given month. However, this minimum monthly threshold is to be removed from 1 July 2022.
Employers should consider whether the removal of this threshold will impact their workforce, ensuring that correct superannuation fund details are held for employees who might not have previously been entitled to SG contributions. Importantly, this change also applies to those contractors who are caught by the extended definition of “employee” for SG purposes.
Additionally, it is important that accounting and payroll systems are equipped to facilitate this change from 1 July 2022 to prevent any inadvertent SG underpayments, as having to remediate underpayments can be costly.
What was the $450 threshold?
Section 27 of the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) provided an exception to payment of SG contributions where an employee earned salary and wages of less than $450 in any given month.
Where monthly earnings fluctuated, SG contributions were only payable for the relevant months where the employee earned $450 or more.
What will change?
From 1 July 2022, this minimum monthly threshold will be removed and an obligation to make SG contributions will arise on all salary and wages paid to eligible employees, irrespective of whether or not the individual has low monthly earnings.
This is intended to increase access to superannuation for low income earners.
Other pre-existing eligibility exclusions will remain under the SGAA: for example, foreign employees who are paid for work completed outside Australia, part-time employees under 18 and high-income employees with an irrevocable tax exemption from the Australian Tax Office (ATO).
What should employers do to prepare?
There are steps employers can take to ensure their records and systems are up to date prior to these changes coming into effect.
Correct superannuation fund details
Where employees may not have previously received SG contributions, employers should ensure they have the correct nominated superannuation fund details for these individuals.
For employees who started their employment after 1 November 2021 and have not provided their fund details, employers may need to request the individual's stapled fund details from the ATO to ensure superannuation obligations are met.
Updates to accounting and payroll systems
Where accounting and payroll systems have automatically excluded employees earning less than $450 per month from SG, employers should ensure these systems calculate SG on all salary and wages for eligible employees.
Consider your contractors
Many contractors are “employees” for SG purposes. Employers should also consider whether any contractors will now be entitled to SG contributions, by reason of the abolition of the $450 threshold.
Risks of failing to act
In the event that SG contributions are underpaid and consequently paid late, employers will be liable to pay the Superannuation Guarantee Charge (SGC). SGC can be financially punitive, particularly when a SG underpayment perpetuates over a number of quarters. The SGC includes the SG amount, a nominal interest component and can involve substantial penalties at the ATO's discretion.
Payment of the SGC is facilitated through the preparation and lodgement of SG statements, which can be administratively burdensome. There is a $20 administrative fee payable per individual, per quarter.
Increased SG liability
Impacted employers can expect an increase to their quarterly SG liability, although this should be relatively low, given the change will only impact low-income earners earning less than $450 per month.