Prepare for Superannuation Changes

The Federal Government is changing Super in Australia through the ‘Stronger Super” reforms.  These planned developments aim to make the super industry more efficient for employers, employees and super funds.  The changes mean that employers will need to plan, review and update their super processes.

Why are these changes taking place?

These changes are based on the finding of the Government’s ‘Super System Review’ carried out in 2010 by Jeremy Cooper.  Basically, Australia was found to have an aging population and for most people the Age Pension is not sufficient to live comfortably in retirement.

What is changing and when is it happening?

Superannuation Guarantee rates will increase incrementally from 9.0% to 12.0% by the financial year 2020.  These changes begin this year from 1^st July 2013, with an increase from the current 9.0% to 9.25%.  The increase in contributions will continue each year until reaching a contribution level of 12% as outlined for the financial year 2019/20.

These changes are illustrated in the table below:

There is also another change accompanying the increase in the Super Guarantee contributions; this is the removal of the age limit on contributions.  At the moment, contributions stop for employees aged 70 years plus, this change will also take place this year from 1^st July 2013.

What does this mean for Employers?

Employers will have the challenge of handling this increase in the Super Guarantee contribution and the prospect of continuing Super payments to older employees.

There are essentially two options and the choice between them is strongly determined by the approach the employer has taken or will be able to take in the future in terms of how remuneration is presented and talked about.

It is expected that, over time, employees’ wages and salaries will increase.  Almost inevitably, the annual increase in the Australian minimum wage drives increases in payroll costs.  With the increase in the Super Guarantee contribution, employers have two options, either;

1. Incorporate it in wage/salary movements, or;
2. Carry the increased contribution as an additional increase in the payroll cost.

However, where wages/salaries are discussed as “base plus super”, it is more difficult to incorporate the Super Guarantee contribution costs in wage/salary increases.  In organisations that advertise and discuss “salary packages”, it will be easier to incorporate the increased Super Guarantee contribution in wage/salary increases.  Otherwise, the increase in superannuation contributions may result in a decrease in employees’ take home pay.

Things that Employers Can Do to Prepare for the Changes to Superannuation

Employers need to start thinking about how the increased level of Super Guarantee contributions will affect their employees’ remuneration packages and the overall payroll costs.  It is important to pay the correct amount of Super Guarantee; otherwise employers will have to pay the SG Charge made up of overdue SG contributions, interest and administration fees.  The SG Charge is not tax deductible; however correct Super Guarantee payments on time are tax deductible.

All SDP’s clients will be ready for these reforms, as our systems and process will be automatically updated.

To ensure all employers are ready for the changes ahead, from the 1^st July 2013:

• Payroll systems will need to be configured to remit the increased contributions to each employee’s superannuation fund from 1^st July 2013, with the software updates allowing for the annual increases through to 2019.    No need for SDP’s clients to worry, as our online platform, TemPay will be updated automatically on the relevant dates;

• decide how the increases will be handled, not just in 2013, but as a common practice for the following six years;

• determine whether or not staff contracts need to be reviewed (which they probably will) to reflect the changes over the period to 2019 in superannuation contribution;

• incorporate the superannuation costs of any employees over 70 years of age;

• develop a communications plan to inform all employees of the coming increases in the Super Guarantee contribution and how the company is going to administer and incorporate them.

It is essential for all employers, to take the necessary action, as ignorance will only hinder continued successful business operations and companies will be penalised with SG Charges.

SDP’s Clients will enjoy peace of mind as we will take care of all these factors for you.