If the Government's recently proposed changes to the
superannuation guarantee scheme come into effect, labour costs will
almost certainly increase, so employers should consider building
flexibility into remuneration obligations.
The Federal Government last week set the wheels in motion to
deliver on its promise to improve superannuation benefits for
Australian workers by introducing a Bill to amend the
Superannuation Guarantee (Administration) Act 1992 (the
The current superannuation situation
For employees eligible to receive employer superannuation
contributions, the SGAA in its current form requires employers to
contribute 9% of their employees' ordinary time earnings to a
complying superannuation fund or a retirement savings account on
behalf of those employees, to avoid incurring the superannuation
guarantee charge and associated costs and charges.
Employers are required to make these contributions until their
employees reach the age of 70.
What might change?
In order to improve superannuation benefits for employees to
ensure greater retirement incomes, the Bill proposes to:
gradually increase the superannuation charge percentage from 9%
to 12%, between 1 January 2013 and 1 July 2019; and
from 1 January 2013, increase the age threshold for when an
employer can cease paying superannuation on behalf of an employee
without incurring the superannuation guarantee charge from when an
employee reaches 70 years of age to 75 years of age.
All other characteristics of the current superannuation
guarantee scheme will remain as they are now.
But, there is a catch...
Introduction of these superannuation reforms is dependent upon
the relevant legislation to introduce the Government's Mining
Tax being passed and commencing before 1 July 2013.
Will employers be able to offset the proposed increases against
future pay rises?
Employers will be required to fund any additional superannuation
contributions introduced under the Bill.
The ability of employers of employees covered by enterprise
agreements and/or common law employment contracts to offset the
cost of the superannuation increases (should they occur) will vary,
and will depend upon all the circumstances of a particular
employment situation, particularly the drafting of those
For example, some enterprise agreements that provide for future
salary increases (usually expressed in percentage terms) express
the increase to be an increase to the employee's base salary.
If this is the case, employers will not be able to offset the cost
of any superannuation increase against the base salary increase
provided for by the enterprise agreement, because superannuation is
not a component of base salary. Any attempt to reduce the base
salary increase provided for in an enterprise agreement in this
situation could expose the employer to legal action for breach of
enterprise agreement and the imposition of penalties.
A similar situation arises where salary and salary increases
provided for in employment contracts are expressed in terms of base
salary, rather than a total remuneration package.
Careful drafting of salary increase clauses in enterprise
agreements, employment contracts, letters of offer and remuneration
policies between now and the proposed date of introduction of the
superannuation charge percentage increases under the Bill could
provide employers the opportunity to offset superannuation
increases by reducing the amount of base salary increases. Such
clauses can be drafted to have this effect whether or not the Bill
– and the Mining Tax – are passed.
What should employers do now?
Employers should review their existing remuneration obligations
to determine what action they will need to take should the Bill
come into effect.
They should consider whether they wish to take steps to build
flexibility into enterprise agreements or contracts of employment
to offset any increased cost of employer superannuation
This should be considered now rather than closer to the date of
increases taking effect, as any changes to make remuneration
arrangements more flexible would need to be built into enterprise
agreements or contracts of employment in advance of the
superannuation increases taking effect.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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