Author: Paul Breedon.

As of 1 July 2023, changes to the Superannuation Guarantee (SG) scheme have come into effect in Australia. These changes will have a profound impact on payroll management and will influence the calculation of employee pay. In this article, we will explore the key changes to Superannuation Guarantee and examine how they affect employers, payroll processes, and potential pay increases for employees.

Increased Superannuation Guarantee Rate

From 1 July 2023, the minimum contribution rate has risen from 10.5% to 11% of an employee’s ordinary time earnings. This change means that employers must contribute an additional 0.5% of an employee’s salary to their superannuation fund.

Phased Increase in Superannuation Guarantee Rate

Furthermore, the Superannuation Guarantee rate will continue to rise incrementally in the following years. By 1 July 2025, the rate will reach 12%. So employers should plan ahead to ensure they are prepared for these future increases and budget accordingly. The new rates will be as follows for future years:

  •  1 July 2023: 11%
  •  1 July 2024: 11.5%
  • 1 July 2025: 12%

Impact on Payroll Management

The increased Superannuation Guarantee rate directly affects payroll management. Employers will need to review their payroll systems to ensure the correct contribution rates are applied. Whilst modern payroll software systems automatically apply the new Superannuation Guarantee rate, it is crucial to ensure any updates to your payroll software are actually correct and communicate with payroll administrators to ensure a smooth transition and accurate calculations of superannuation contributions.

Financial Considerations for Employers

The increase in the Superannuation Guarantee rate will result in increased financial obligations for employers. Businesses need to budget for the additional employer contributions and factor them into their cost projections. It may be necessary to assess other areas of the business to accommodate the increased superannuation costs effectively.

Employee Pay Increases

While the increase in the Superannuation Guarantee rate means higher costs for employers, it also has potential implications for employee pay. There are three main approaches employers may adopt:

1. Absorbing the Increased Costs

Most employers will choose to absorb the additional superannuation costs themselves without passing them on to employees. In this scenario, it is important to ensure that pay increases which may coincide with the end of the financial year take this additional Superannuation Guarantee increase into account in the overall cost to the business.

2.  Employee Cost Bearing

It is an option that employers NOT increase the overall employment cost, and pass the additional cost onto the employee. This would mean a reduction in take-home pay for employees. In that case, employers should engage in open communication with employees, explaining the impact of the Superannuation Guarantee changes and the potential need for adjustments in remuneration. Prior to any action with this option, the employer should review the employment contracts and seek specialist legal advice.

3. Employee Cost Sharing

Alternatively, employers may opt to share the increased superannuation costs with employees. This could involve adjusting pay rises or altering the structure of employment packages to offset the added financial burden. Employers should engage in transparent communication with employees to explain the reasons behind such decisions and ensure their understanding.

Communication and Employee Engagement

Employers should communicate any changes to Superannuation Guarantee payments with their employees. Transparent and proactive communication will help manage expectations and minimise confusion among the workforce. It is essential to outline the reasons behind any potential changes in employee pay and clarify the impact on their overall remuneration package.

The changes to Superannuation Guarantee from 1 July 2023 present both challenges and opportunities for employers in managing their payroll and employee compensation. While the increased Superannuation Guarantee rate places a financial burden on businesses, it also provides an opportunity to review overall remuneration strategies and engage in open dialogue with employees about the impact on their pay. By adapting to these changes proactively, employers can ensure compliance, maintain employee satisfaction, and navigate the evolving landscape of superannuation regulations successfully.

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