In the recent budget handed down, the Federal Government decided not to delay (or abolish) the previously legislated increase to the superannuation guarantee rate, which will affect all employers. Retailers and businesses employing part time and casual staff on lower wages should be especially aware of these changes along with some other changes announced in the 2021-22 Federal Budget.

The superannuation guarantee rate will increase from 9.5% to 10% from 1 July 2021 and is set to subsequently rise by 0.5% each year, until it reaches 12% during the 2025-26 income year. In preparation for this change, employers are encouraged to review their employment contracts and ascertain whether the employee’s package is inclusive of or excluding superannuation guarantee. 

The increase in superannuation rate may have a corresponding negative impact on the employee’s take-home-pay if their contract states their salary and wages are inclusive of superannuation. By way of example, if an employee’s salary is $90,000 inclusive of superannuation, the following would be the impact of the rate increase on their pay going forward:

Income yearSG rateGrossSuperannuation
(before tax)
2020 – 219.5%$90,000$7,808$82,192
2021 – 2210%$90,000$8,182$81,818

Alternatively, if an employee’s salary is $90,000 exclusive of superannuation, the following would be the impact of the rate increase on their pay going forward:

Income yearSG rateGrossSuperannuation
(before tax)
2020 – 219.5%$98,550$8,550$90,000
2021 – 2210%$99,000$9,000$90,000

Communication is key

If you have multiple stores or venues with a central HR department, it will be important to communicate your approach to staff early, to ensure transparency. The increase in superannuation guarantee will have a corresponding impact on other employer costs such as payroll tax and this should be factored in for cash flow planning purposes.

More changes in the pipeline

In the 2021-22 Federal Budget, it was announced that the $450 monthly minimum income threshold will be abolished, and employers will be required to pay superannuation guarantee on all their employees’ salary and wages, regardless of their salaries Due to the casual or occasional nature of employment in the retail sector, we expect a substantial number of retail businesses to be affected by this change, which will benefit more than 300,000 individuals each month.

Previously, the minimum income threshold was a concession afforded to businesses to reduce their compliance costs. With improvements in technology making it simpler for business to comply with superannuation guarantee requirements, even smaller businesses and independent retailers should be able to cope with this change. Whilst most would be supportive of these employees being entitled to superannuation guarantee, it is important to note that several SMEs will be affected by this change, e.g. hospitality businesses, and (independent) retail stores, who have previously been hit hard by the COVID-19 pandemic.

The changes to the minimum income threshold will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.

Implications of getting this wrong

It is critical that businesses consider this change now in preparation to ensure compliance. What employers may not realise is that the potential consequences for missing or underpaying superannuation payments are far ranging and can include:

  • Paying superannuation guarantee on all wages, not just ordinary earnings. If payment is late, superannuation guarantee is payable on all wages, not just those payments which are considered ordinary times earnings e.g., overtime pay.
  • Loss of tax deductions on late contribution payments. Tax deductions for superannuation contributions are available only for actual payments made and not for amounts due. To be eligible to claim a deduction the payments must be made on time. If a payment is made after a due date, be it a day late or much longer, a tax deduction is denied. 
  • Additional costs to pay which are not tax deductible. In most cases, a SCG statement is required to be lodged for missed payments and a charge paid, on many occasions, directly to the ATO together with extra interest and administration fees.  None of which are tax deductible.
  • It is important to note that even if you have paid the amounts to the employees’ superannuation fund after the due date, you would still need to complete and lodge the SG charge forms with the ATO within two months of the quarter end. If these are not done, the ATO may issue you with a Part 7 penalty if they discover non-compliance during a tax review/audit. A Part 7 penalty can be issued at a minimum 100% (up to 200%) which means you may have to pay the SG twice if non-compliance is discovered at a later date. The ATO’s discretion to remit such penalties has been reduced drastically since the SG amnesty ended last year.
  • Of most importance to officeholders, directors of companies can also be personally liable for any unpaid SGC.

Davide Costanzo is chairman of the Moore Australia Tax Committee.