Everything Is Just Super - 27th June 2021

Since our recent newsletter on changes happening from 01 July 2021, our office has received a number of enquiries around superannuation, so I thought I would send out an update sharing a few of the questions asked and some of the misunderstandings in the recent announcements.

A. Abolition of the $450 monthly low-income threshold.

Since the Superannuation Guarantee (SG) rules were introduced in 1992(!), there has been a $450 low-income threshold. For those employees who earn less than $450 in a calendar month, there is no obligation by the employer to pay the SG. Since 1992, many have argued (including the writer) that this threshold should have be increased, at least in line with inflation. Despite the recent introduction of No Fee or Low Fee Superannuation Funds, many Funds seem to vacuum up employees' small superannuation balances with their fees.

Nevertheless, in the May 2021 budget the Government announced the abolition of this $450 monthly threshold. However, that rule does not become law until the first day of the financial year AFTER the Bill receives Royal Assent.

We have had a number of enquiries from clients and bookkeepers on how to update payroll software to get rid of the threshold, but it is not law yet and it will not be until at least this time next year.

Keep in mind this is a minimum threshold, so as an employer, if you want to override this threshold and pay more superannuation for your staff, please contact our office.

B. Increase to the Annual Superannuation Contribution amounts
As outlined in our recent newsletter the Government announced an increase to the annual superannuation contribution amounts. They are:
 

If you are an employee who salary sacrifices into superannuation and you want to take advantage of the increase in the above amount, you will need to speak to your payroll person to increase the salary-sacrificed amount from your first pay on or after 01 July 2021.

C. Increase to the SG percentage

As you should be aware from our previous newsletter, the SG rate is increasing on 01 July 2021 from 9.5% to 10% of an employee's gross salary. There are many rules around what is included for the purposes of calculating the SG amount and if you are not sure please contact our office.

We have had a number of enquiries in respect of updates to the software that handles the payroll function and if the supplier will be automatically updating the rate.

Our current understanding is as follows:

1. MYOB Essentials - Manual Update Required. Instructions here.

2. MYOB AccountRight - Manual Update Required. Instructions here.

3. Xero - Automatically updated.

4. Quickbooks Online - Automatically updated.

5. Reckon - Automatically updated.

6. All other software suppliers - please contact them for confirmation.

D. Be careful with...

1. Customised Payroll Categories - Be very careful with the above updates and making assumptions. If you have created your own payroll categories to deal with the quirks of your business, then we recommend you check each payroll category to ensure you pay the correct amount of superannuation. The last thing you need as an employer is to be accused of Wages Theft.

2. Lump Sum Employment Contracts - also be careful with lump sum employment contracts, i.e. contracts that specify an employee will be paid an amount inclusive of superannuation.
For example, Robert has a contract of employment dated 05 April 2021 which states he will be paid $3,000 per week inclusive of superannuation. This means he actually incurs a pay cut from 01 July 2021 calculated as follows:
 

This changes to:
 

I have read some reports that employers in the above example have indicated they will hold the employees Gross wage at the old rate and apply the new SG rate effectively giving the employee a pay rise as follows:
 

As you can see, it is not a lot of money. Employers need to weigh up the cost of the potential pay rise, the value of a gesture of goodwill and the negative impact of sticking to the strict wording of the contract.

E. Timing of the Increase

Finally, we look at the timing of the increase. We know the SG rate increases on 01 July 2021. However, what does that mean practically for wages paid this week? The key is when the employee is paid, not when the employee worked. For example: