Reviewing Employment Contracts and Industrial Agreements
Employers should be reviewing their existing employment
With the reductions in concessional contributions caps for
superannuation contributions, employers should review their
employment contracts and industrial agreements to ensure that in
meeting their contractual or agreement obligations they will not
exceed the concessional caps and expose employees to unexpected tax
From 1 July 2012, the concessional cap of $25,000 will apply to
all employees. The proposed concessional cap of $50,000 for
employees aged over 50 with less than $500,000 in superannuation
has been deferred until 1 July 2014.
If an employer is making contributions at the rate of 9% without
regard for the maximum earnings base, (ie contribution in excess of
the amount required to meet the obligations under the
Superannuation Guarantee (Administration) Act 1992), an employee
earning more than $278,000 per annum will exceed the concessional
cap. Contributions made in excess of the concessional cap are
subject to excess contributions tax, making them largely
ineffective for taxation purposes. Some contracts and industrial
agreements provide for contributions to be made at higher rates.
Employers should review their contracts and industrial agreements
to ensure that they allow sufficient flexibility to deal with these
changes and avoid employees facing unexpected tax liabilities.
From 1 July 2012 the health insurance rebate will be means
tested. Where an employer is paying health insurance premiums for
its employees or there are salary sacrifice arrangements in place,
employers should be considering whether changes are necessary as
those premiums increase. The current rebate of 30% will start to be
reduced where an employee earns more than $84,000 as a single or
where a family income is more than $168,000. Employers and
employees alike may wish to consider making a prepayment in respect
of premiums before 1 July 2012. Such premiums will still attract
This is an opportunity to ensure that the contracts are up to
date with current legislation particularly with regard to accrual
of leave entitlements such as annual leave, personal leave and long
service leave so that these entitlements are being accrued
correctly in the payroll system.
Planned Employee Departures
From 1 July 2012 changes to the rates of tax for Employment
Termination Payments (ETP's) are being
introduced. After 1 July, that part of an ETP that takes a
person's total income (including the ETP) to no more than
$180,000 will still receive the tax offset. However, amounts of an
ETP that take a person's income above $180,000 will be taxed at
marginal rates, generally 46.5%. ETPs up to the cap are taxed at
15% (plus medicare levy) for those aged over 55 and at 30% (plus
medicare levy) for those aged under 55.
The existing arrangements will be retained for some types of
ETPs such as genuine redundancy payments and compensation due for
an employment related dispute.
However for employers who may be considering planned employee
departures that may not satisfy the requirements for a genuine
redundancy for tax purposes, then finalising the arrangements and
making payments prior to 30 June 2012 may provide the employee with
a more beneficial tax outcome.
Similarly employers that may have obligations to make severance
payments on conclusion of a project or contracted works should
consider the impact of these tax changes on those payments.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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