Super: don’t forget about the rate increase

Summary

Effective from 1 July 2021, the superannuation guarantee rate has increased from 9.5% to 10% requiring employers to contribute an additional 0.5% to meet their obligations.

As an employer, it is crucial that you understand your obligations and confirm that the new super guarantee rate has been applied correctly to payroll processed from 1 July 2021 and, if required, any changes have been effectively communicated to employees.

In Detail

Increases to the super guarantee rate have been legislated and, as outlined below, will continue to increase over the years ahead up to 12% from 1 July 2025.

Whether the government of the day continues to support these increases is yet to be seen however, as this has already been legislated, employers should be budgeting for the 0.5% annual increases.

Who pays for the increase?

How the increase is applied will be dependent on whether the employee’s remuneration is super inclusive or whether super is calculated and applied on top of their income. Employer’s will need to review employment contracts, awards or other agreements to confirm how employees are required to be remunerated.

Super-inclusive remuneration

Where an employee’s remuneration package is super inclusive, the total package will stay the same (absent any review or increase) and their net pay (the amount that is deposited in their bank account) will decrease from 1 July 2021. This will need to be effectively communicated with employees .

Alternatively, employers may choose to wear the cost of the super increase so that employee’s net pay remains consistent. Employers will need to include this increase in any budgets or forecasts and should communicate this with employees if that hasn’t already occurred.

Super-exclusive remuneration

Where an employee’s remuneration package is super exclusive, their total package will increase by 0.5% and so it will be important for employers to factor this increased payroll cost into their budgeting.

Payroll systems

While most STP enabled payroll software should automatically take up the increase for pay periods ending after 30 June 2021, employers should run appropriate checks to ensure the super increase has been applied correctly.

If you’re a Xero user, the increased rate should apply automatically provided the employee has the ‘Statutory Rate’ option selected.  To check the rate applied to employees, login to Xero and select Payroll > Employees > select the relevant employee > Pay Template > select the super fund listed and check the calculation type: