Superannuation Guarantee to increase to 10% on 1st July 2021

The minimum percentage employers are required to pay is set to increase over time, with the next increase to 10% due on 1st July 2021. This should be considered in part, a wage increase.

What this Means for Small Business

The proportion of wages that employers must contribute to their workers’ superannuation is legislated to increase half a per cent a year before reaching a final value of 12 % by 2025.

The superannuation guarantee is paid in addition to base salary. For example, if an employee’s contract is $60,000 plus super, as an employer you will pay a gross income of $60,000 to the employee (less personal income tax withheld) and then make an additional $5,700 superannuation guarantee (or 9.5% of the base salary) to the superannuation fund. This worker’s total income (salary plus super contribution) is $65,700.

When the superannuation guarantee increases to 10%, an employee’s base income does not change (you are not permitted to decrease the base income). The employer will be required to make an additional $300 contribution to the employee’s superannuation fund (a total of $6,000). The worker’s total income is now $66,000.

When the compulsory SG contribution level is increased a business will need to adjust their payroll systems to pay the increased amount of super. If they don’t pay the correct rate of SG into employees’ super accounts by the quarterly due date, they may have to pay the Superannuation Guarantee Charge (SGC)

Manage Cash Flow
With the increase in compulsory super contributions coming out of the same business budget as wages and all other on-costs such as workers compensation, payroll tax, PAYG and superannuation you need to plan ahead to ensure you are able to afford the ongoing costs of superannuation increases.

This pending increase and all future increases need to be built into a business budget as be considered part of wage increases over time. Best practice is that it is better to overestimate than underestimate

Accurate and up-to-date financial records will help a business manage cash flow. By regularly reviewing your business’s performance, the business owner, Bookkeeper, and Tax Agent can address financial problems immediately.

Assess the total employment costs of the business and add a percentage on top of the total costs to cover not just the rise in superannuation but also any miscellaneous expenses and unforeseen blow outs.

Summary

Every employer’s obligation to pay superannuation will increase as of 1st July 2021 . This is an increase cost to business, that must be considered for cashflow and budgeting purposes.