Superannuation Guarantee Rate Increases To 10 Percent On 1 July 2021

The super guarantee rate will increase from 9.5% to 10% on 1 July 2021. It is scheduled to progressively increase by 0.5% until it reaches 12% in July 2025.

As a result, employers need to update their payroll settings to reflect the 0.5% increase in the SG rate. More importantly, employers and employees will be required to consider the future impact of the increased SG costs.

What will the effect be on employers and employees?

The terms of existing and new salary packages will dictate the financial impact of the SG rate increase.

For example:-

  1. Will the additional 0.5% SG contribution be added to the existing salary package (Therefore, no change to employee net pay)?
    OR
  2. Will the additional 0.5% SG contribution be incorporated into the existing salary package (Reduction to employee net pay)?

Furthermore, it will be important to look into the relevant employee awards for the effect of the increase in the SG rate.

Is my current Salary Sacrifice arrangement allowed?

In instances where an employee makes a salary sacrificed contribution, employers cannot count the extra 0.5% as part of this arrangement. Further to this, it is no longer possible for any salary sacrificed arrangements to reduce the earnings on which the SG percentage applies.

How does it affect the super contribution base and opt-out for multiple employers?

The increase in the SG rate to 10% from 1st July 2021 means:-

  1. The maximum super contribution base (i.e. earnings that employers do not have to pay SG on above this limit) will increase on 1 July 2021 to $58,920 per quarter ($235,680 per annum), up from $57,090 per quarter ($228,360 per annum).
  2. The SG opt-out income threshold will increase to $275,000 from 1 July 2021 (up from $263,157). This allows high-income earners with multiple employers to opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap.

Concessional contributions cap increase

The annual concessional contributions cap, from 1st July 2021, which limits the annual concessional super contributions for employees, will increase from $25,000 to $27,500.Employers and employees should ensure concessional contributions are not made beyond this amount as excess contributions may attract higher tax rates and an excess charge.   

What you need to do now

In anticipation of these changes and its impact on future employee costs, we strongly suggest employers review current employee contracts and agreements. Following this, employers should review all payroll settings to ensure they are correct prior to the increase in the SG rate on 1st July 2021.

As always, don't hesitate to contact us if you have any queries in relation to any of these changes.