As the end of the financial year approaches, so does the next round of changes for Australia’s Superannuation Guarantee. Just like the cost of fuel, the average supermarket shop, and of course interest rates, there is yet another increase set to take place as of the 1 July 2022, compulsory superannuation contributions. As much as this may seem like a windfall for working Australian’s, who are set to receive a further 0.5% in compulsory superannuation contributions from their employers paid into their retirement savings, it may not be quite so simple. With many businesses facing increased costs from every which direction, salary renegotiations to account for this increase and reducing the employed workforce may be potential consequences, as businesses battle to survive after 2 years of pandemic closures and shutdowns. For both business owners and individuals, these changes which are set to come into effect on 1 July 2022 and will undoubtedly have a significant impact. We take a look at what you as a business owner and employee need to know. Australia’s superannuation guarantee
Compulsory superannuation was introduced in Australia on the 1st of July 1992 with the goal of lifting the living standards of Australians during their retirement years. The scheme required employers to pay compulsory payments of superannuation, a percentage of the employers wage to a delegated savings fund under the provisions of the Superannuation Guarantee (Administration) Act 1992, no. 111. In the years that followed the commencement of the scheme, the percentage of an employees wage that was required to be paid by their employer was staggered, initially being 3% in 1992 increasing in small increments to 9% by 2002. The Australian Superannuation Guarantee provides that contributions are paid not only for full-time employees but also for part time and casual employees, in addition to temporary residents.
History of the changes
Whilst increases in the rate of superannuation that must be paid by employers is certainly not a new phenomenon, only 3 years after the scheme was introduced many economists has expressed concerns that superannuation contributions were simply inadequate. These concerns were focused on the fact that at the current rate, these contributions were unlikely to leave employees with sufficient superannuation to set them up for a comfortable and independent retirement, with the primary concern being that they would need ongoing financial assistance, perhaps in the form of ongoing welfare and the aged pension to live out their retirement years.
In response to this on the 11th May 2021 as part of the 2021-2022 Federal Budget, the Australian Government announced plans to increase compulsory superannuation contributions, which will see contributions rise to 12% by 2025.
Currently the superannuation guarantee requires employers to contribute 10%, with this figure set to increase to 10.5% on 1 July 2022, in just a few weeks time, followed by further staged increases over the next 3 years. In 2023 the rate will increase to 11% and rise to 11.5% in 2024 followed by the end goal of 12% in 2025.
Benefits and disadvantages of staged approach
This staged approach, which sees the contribution percentage increase by 0.5% annually over the next few years, was designed to provide employers enough time to adjust to the changes. Ultimately the changes will benefit the retirement savings and the future of working Australian’s, who should under this process have a greater amount of funds available for their retirement years and be less reliant on the aged pension. However for business owners the increase does certainly provide challenges, with many businesses already struggling after 2 years of Covid-19 lockdowns and closures, which has for some businesses severely diminished their bottom lines. With profits already down for many, business owners will need to decide how to absorb the increased cost of the contributions, not to mention the extra time and effort that goes into adjusting payroll systems to ensure this updated contribution percentage is changed when it commences each year for the next few years. Some employers may need to make significant changes to employee salary’s which may also include contract negotiations.
Other changes as of 1 July 2022
In addition to the increase in the superannuation guarantee contribution percentage to 10.5%, there are also other significant changes which also come into effect as on 1 July 2022, which business owners should be aware of. Currently, almost all working Australians are eligible for superannuation guarantee contributions, with the current criteria being that the employee must be over the age of 18 and earn $450 per month. From the 1 July 2022 this eligibility criteria will be expanded to be even more inclusive, with employers required to make superannuation contributions for all employees over the age of 18 years regardless of the income earned each month, thus removing the $450 income requirement.
DreamStone HR – How we can assist!
With the Australian Taxation Office (ATO) offering no grace period in terms of implementing these changes within your business, it is important to get on top of them early and understand the changes you will need to make to ensure your business continues to operate effectively and profitably. With extensive experience in all things HR, including contracts, salary negotiations and strategic business planning and compliance the team at DreamStone can provide timely and professional assistance to hep keep your business on track during these challenging times. As your right-hand man, when it comes to navigating requirements and fielding staff enquiries, the team at DreamStone HR are the smart choice when it comes to getting your businesses quarterly superannuation guarantee payment on track. Give our friendly team a call today on (02) 8320 9320 or email firstname.lastname@example.org and let’s chat!