Australia: Super is changing on 1 July 2022 – are you ready?

There are a raft of changes to superannuation laws that are taking effect from 1 July 2022, some of which will impact how employers make superannuation contributions on behalf of their employees. Whilst the changes themselves are relatively simple, implementing them could be considerably more complex. It’s worth taking a look at your current arrangements now so that your organisation is ready to give effect to these changes in the new financial year.

The key changes

A number of reforms to superannuation laws are taking effect from 1 July 2022. There are two key changes that all employers must be across:

• Increase to super guarantee: From 1 July 2022, the super guarantee rate will increase from 10% to 10.5% of an employee’s ordinary time earnings. Employers will be required to use this new rate to calculate superannuation payments made to employees’ superannuation funds on or after 1 July 2022, even if some or all of the pay period is for work done before 1 July 2022. The super guarantee rate is legislated to increase by 0.5% per annum until it reaches 12% by 2025.
• Removal of monthly threshold: Currently, employers are not required to make superannuation contributions on behalf of employees who earn less than $450 per month. From 1 July 2022, this monthly minimum wage threshold is being scrapped, meaning that employers will be required to make superannuation contributions for all employees (including casual and part-time employees) regardless of how much they earn. However, employers are only required to make superannuation contributions for employees under 18 years old if they work more than 30 hours in a week.

What organisations need to consider

Whilst the removal of the monthly minimum threshold is likely administratively easier to implement for most organisations, the increase to the super guarantee rate could be more complicated. A key question many organisations are asking is this: who foots the bill for the increase to superannuation contributions – the company, or the employee?

The answer fundamentally depends on the wording of the employment contract or industrial instrument that governs the employment relationship between your organisation and employees. For example, some employment contracts may express an employee’s remuneration as comprising of base salary plus superannuation contributions and other entitlements. Other employment contracts may express remuneration as being a ‘total employment cost’, ‘total remuneration package’ or other similar language, which is said to be inclusive of base pay, superannuation and other employee benefits. The former example is likely to require employers to bear the cost of the increase to superannuation contributions that are provided to the employee (if expressed as base pay plus superannuation). In contrast, there may be greater scope for an employer to adjust the cash component of an employee’s ‘total employment cost’ (or similar) package in the latter example such that their take-home pay is proportionally reduced to account for the increase to their superannuation component (and therefore comes at no increased cost to the employer). There could be a range of other examples in between too – it comes down to the wording and interpretation of the relevant employment contract or industrial instrument.

Even if an employment contract or industrial instrument permits an employer to offset the increase to superannuation contributions as part of an employee’s overall remuneration package, there is a secondary question that organisations need to grapple with: should they do so? In 2021, when the superannuation guarantee rate increased from 9.5% to 10%, organisations took differing approaches – some simply agreed to pass on the increase to employees at their own cost, whereas others relied on clauses that specified ‘total employment cost’ (or similar) to avoid passing on the increase. Those employers that adopted the latter approach were subject to some criticism, both internally and externally – some employees believed that it sent a negative message about the value that their employer placed on their workforce, and some unions were also critical of the process, with ACTU President Michele O’Neil commenting that “It is absolutely shocking to me that employers would be trying at this point to try and avoid paying that small increase in superannuation”. This year, there is an increased focus on wage growth, reflecting the sharp rise in the cost of living and the strengthening of the labour market – factors recognised in the Fair Work Commission’s Annual Wage Review increasing the national minimum wage by 5.2%.

Given the complex legal and social implications that arise in this context, employers should be thinking about these matters now in order to be prepared for when these reforms take effect on 1 July 2022.

This article was prepared by Anthony Wood, Partner, and Marco Fedeli, Senior Associate.