Australia: Can employers absorb superannuation guarantee increases?

The Superannuation Guarantee (Administration) Amendment Act 2012 (Cth) (Amendment Act) was assented to on 29 March 2012, and will commence operation on 1 July 2013. Amongst other things, the Amendment Act amends the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG(A) Act) to incrementally increase the superannuation guarantee (SG) charge percentage from 9% to 12% by the financial year 2019-2020.

Employers should consider whether these SG increases can be absorbed into the total remuneration being paid to current employees, by a commensurate reduction in their cash remuneration (or a reduction in other benefits). If not, employees will, effectively, be entitled to an increase in their total remuneration from the SG increases, with employers having to bear the extra cost of such increases.

In this In Brief, we examine the Amendment Act and the impact that it is likely to have on existing and future employment contracts.


Under the SG scheme, employers are liable to pay a 'superannuation guarantee charge' to the Australian Taxation Office (ATO), but that charge is reduced if they make a prescribed minimum level of superannuation contributions to a complying superannuation fund or a retirement savings account on behalf of eligible employees. 1

The minimum level of superannuation contributions to be made by an employer to reduce the superannuation guarantee charge to nil is the SG charge percentage, which is currently 9%, 2 applied to each eligible employee's ordinary time earnings (OTE).


From 1 July 2013, the Amendment Act will require employers to pay an SG charge percentage of 9.25% of OTE. This will increase incrementally for each ensuing financial year until it reaches 12% in the 2019-20 income years, as follows: 3

Item Year SG Charge
1 Year starting on 1 July 2013 9.25%
2 Year starting on 1 July 2014 9.5%
3 Year starting on 1 July 2015 10%
4 Year starting on 1 July 2016 10.5%
5 Year starting on 1 July 2017 11%
6 Year starting on 1 July 2018 11.5%
7 Year starting on or after 1 July 2019 12%


The Amendment Act makes no provision for how the increase in the SG charge percentage interacts with an employee's entitlements under employment and workplace laws. Whether an employer can fund the increased superannuation contributions by reducing other components of an employee's remuneration depends on whether this is permitted by an employee's contract of employment, and or the terms of any applicable modern award or enterprise agreement.

If the contract of employment states the employee's remuneration in terms of a total remuneration package or 'total employment cost' that is inclusive of superannuation, then it may be that an increase in the prescribed level of superannuation contributions can be offset by reductions in the cash component of the employee's package. This will depend on the particular wording of the contract in question. However, in putting these arrangements into effect, employers must be careful to ensure that employee salary rates do not fall below the minimum wage provisions of an applicable award or enterprise agreement.

If the contract does not expressly deal with this issue, and a term to this effect cannot be implied into the contract, an employer that unilaterally takes action to absorb the SG increase into the employee's current total remuneration will run a high risk of being exposed to claims. These could include claims for damages for breach of contract, or unfair dismissal/adverse action claims under the Fair Work Act 2009 (Cth) (FW Act) if an employee resigns or is dismissed because they refuse to accept the employer's unilateral action. For example, it could be argued that the SG(A) Act is a 'workplace law' for purposes of the definition of a 'workplace right' in section 341(1) of the FW Act. Accordingly, employers who embark on this course must be careful, as their actions could be alleged to be adverse action against, or coercion of, an employee not to exercise a workplace right to the benefit of a workplace law (in breach of section 340 or section 343).


On 9 May 2013, the Opposition Leader, Hon. Tony Abbott MP, promised to delay the timetable for increasing the SG contribution for two years:

"I announce that we will delay by two years the ramp up in compulsory superannuation because this money comes largely from business – not from government – and our economy needs encouragement as mining investment starts to wane and new sources of growth are needed".

If the Coalition wins the 14 September federal election, this is likely to mean that the increase in the SG charge percentage to 9.5% due on 1 July 2014 would be deferred to 2016, and the ceiling of 12% would not be reached until 1 July 2021. Of course the election will be held after the first increase, to 9.25% on 1 July 2013, is due to occur, and it seems unlikely that the Coalition would reverse this increase.


1Sections 15 and 19 of the SG(A) Act.

2Section 19(2) of the SG(A) Act.

3Schedule 1, item 2 of the Amendment Act, replacing section 19(2) of the SG(A) Act.

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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