Two important changes to superannuation will apply from 1 July 2022. As a business owner, it is important that you understand what these are, what they mean for your business and what actions you need to take.
Super Guarantee rate will increase from 10% to 10.5%
As a business owner, you usually need to pay superannuation contributions for any eligible staff to a complying superannuation fund. The current minimum rate you must pay is 10% of an employee’s ordinary time earnings (OTE). This is known as the super guarantee.
However, the Australian Government has legislated an increase in the super guarantee rate to 12% by 2025. The increase to 12% will not occur all at once, but in stages, to help business owners accommodate the changes. As of July 2021, the rate increased from 9.5% to 10%. From 1 July 2022, the super guarantee rate will increase to 10.5%. These incremental rate increases will occur each year until it reaches 12% in 2025.
This change in legislation was made to address concerns that many Australian employees may not have enough super to ensure they meet their basic needs for retirement. The purpose of the incremental increases in contribution made by employers to an individual’s super fund is to assist employees in growing their retirement savings to ensure a comfortable retirement.
The $450 per month eligibility threshold will be removed
Another considerable change to benefit employees, especially low-income earners, is the removal of the $450 monthly minimum wage threshold. This means that regardless of how much your employees earn, they may be eligible for Super Guarantee contributions. From 1 July 2022, you will have to pay super contributions for employees regardless of how much they earn, if they meet the other eligibility requirements.
The only exception to this rule is that where an employee is under 18 years old, they still need to work more than 30 hours in any week to be eligible for the Super Guarantee.
This change will be of great benefit to women, who tend to have far less superannuation when they retire than men. The average superannuation payout for women is only one-third of the payout for men, so removing the income minimum should help improve these numbers.
What do I need to do as a business owner?
If you have staff, you will need to be ready for these two important superannuation changes by 1 July. Make sure your accounting and payroll software and systems are up to date with super payments and are calculating the correct amounts for each eligible staff member.
This new rate is applied when wages are paid, not when work is performed. For example, if the pay period includes part of June and part of July, but the payment date is in July 2022, the Super Guarantee rate of 10.5% will apply to the full period including the hours worked in the 2021 financial year.
Ensure that the $450 threshold has been removed for all employees. This means that some employees will be paid superannuation for the first time. Therefore you will need to provide them with a Standard Choice form or you can send a request to the ATO for the employees’ stapled super fund details – their existing super account linked to an individual employee that follows them when they change jobs.
The ATO can penalise businesses that do not pay the minimum superannuation guarantee amount on time – the superannuation guarantee charge (SGC). This charge can work out to a larger amount than the super they were required to pay – and it is not tax deductible. So it is worth getting organised soon.
The ATO website has a comprehensive summary of information about employer super obligations to employees.
If you have any questions about preparing your systems for these two important superannuation changes before 1 July, please contact your Arabon accountant to discuss or call us on 1300 ARABON.