Superannuation Guarantee (SG) increase effective 1 July 2021

The Superannuation Guarantee (SG) rate will increase from 9.5% to 10% on 1 July 2021. Employers with staff on salaries that are inclusive of superannuation will need to make a decision – whether to incorporate the increase in the existing salary package of staff or apply the SG uplift as an increase to total employee costs.

Which way employers decide to go with handling the SG increase could be influenced by existing employment arrangements for employees.

Incorporating the increase

When the salary package of staff is ‘including super’, some employers may not be facing a rise in employment costs from 1 July 2021 as the decision could be made for the increased SG to reduce the amount of take-home pay for employees. According to a recent report in the Australian Financial Review, two-thirds of surveyed Australian firms currently employing people under this kind of ‘total package’ arrangement are planning to adopt this method to help keep a lid on employment costs. The ‘total package’ approach is sometimes used in individual agreements in the private sector.

Absorbing the increase

When people are employed on a base rate or salary package ‘plus super’, the employer may decide to meet the full cost of higher superannuation contributions and maintain the take-home pay of employees. Neither the national minimum wage nor award minimum wages include superannuation, which is good news for many low-income earners, although some studies have suggested that increases in superannuation can lower overall lifetime earnings through broader economic effects.

Although the SG increase in itself is straightforward and there has been plenty of time to prepare, there are still many employers yet to make the final decision on how this first increase will be managed, with SG rising in 0.5% increments to 12% between 2021 and 2025. With this outlook, some employers have decided to reconsider how they’re packaging remuneration in the future while others are already making provision for these changes in budgets and forecasts of employment costs.

If you’re not certain how your business should go forward with progressive increases in SG, talk to Geoff Morris at Billings+Ellis about your specific business circumstances. You also might also want to call if you’re an employee or SMSF member affected by the changes.