Commencement of the new financial year brings with it changes to minimum wages; national unfair dismissal laws and various tax thresholds and rates.
Our industrial and employment law and tax teams have produced the following summary of the significant changes about which employers should now be aware. Depending on your circumstances, some may require immediate action to ensure ongoing regulatory compliance.
We've also taken this opportunity to provide a brief snapshot, for employers, of a number of significant developments in the tax space.
Increases to minimum wage rates for national system employers (all States/Territories bar Western Australia (WA))
In accordance with the 2013 annual wage review of the Fair Work Commission, the following changes take effect to minimum wages from the first full pay period on, or after, 1 July 2013:
- All modern award rates of pay have increased by 2.6 percent, with flow-through proportionate increases to hourly minimum wages and annual salaries.
- The national minimum wage for adults working full time (38 hours per week) increased from $606.40 to $622.20 (an increase of $15.80 per week).
- The minimum hourly rate for permanent national system employees increased from $15.96 to $16.37 per hour.
- The default casual loading for award/agreement free casual employees increased from 23 percent to 24 percent. The minimum hourly rate for casual employees to whom a modern award applies will continue to be subject to the modern award standard casual 25 percent loading.
The changes apply to all workers in the national system including juniors, trainees, differently abled employees and those paid under piecework arrangements.
Changes to minimum wage rates for WA system employers
For those employers in Western Australia outside the national system, from 1 July 2013 the WA minimum wage increased from $627.70 to $645.90 per week (ie the WA minimum wage is $23.70 per week higher than the national minimum wage).
In the WA private sector the change will apply mainly to employers who are not companies, such as sole traders and partnerships of individuals.
Changes to federal unfair dismissal jurisdiction
The high-income threshold under the Fair Work Act increased from 1 July 2013 to $129,300 (up from $123,300).
Employees not covered by an award or statutory workplace agreement do not have access to the Federal unfair dismissal jurisdiction if their annual rate of earnings exceeds the high income threshold.
The change also:
- means that the maximum compensation that might be awarded in an unfair dismissal claim has increased to $64,650 (half the threshold and up from $61,650); and
- may affect the application of awards and award entitlements to high income employees whose industrial arrangements incorporate a guarantee of annual earnings at a level intended to exceed the threshold.
Key tax rate and threshold changes
From 1 July 2013:
- The employment termination payment cap amount has increased to $180,000 (up from $175,000).
- The superannuation charge percentage increased to 9.25 percent (up from nine percent).
- Subject to the passage of pending legislation (awaiting Royal Assent), the superannuation maximum contribution base will increase to $48,040 per quarter.
- Subject to the passage of pending legislation (awaiting Royal Assent), the base amount for the tax free part of a genuine redundancy payment and an early retirement scheme payment increased to $9,246, and $4,624 for each completed year of service.
- Superannuation contribution caps for the 2013 income year:
- Concessional contributions cap: $25,000
- Non concessional contributions cap: $150,000
- Subject to the passage of pending legislation, the concessional contributions cap increased to $35,000 for older Australians, for the 2013-2014 income year, where the individual is 59 years or over on 30 June 2013.
Key employment tax developments – snapshot for employers
2013 PAYG withholding schedules made
The Commissioner of Taxation has released the new withholding schedules to apply from 1 July 2013. The withholding schedules set out the amounts, formulas and procedures to be used for calculating the amount to be withheld from withholding payments, including, for example, salary and wages and employment termination payments.
The Medicare levy will increase from one and a half percent to two percent of taxable income for the 2014-2015 income year and later income years. The increase in the Medicare levy will have significant flow on effects including for future PAYG withholding obligations and fringe benefits tax.
The Queensland Government previously announced that it would increase the payroll tax threshold from $1 million to $1.6 million between 1 July 2012 and 1 July 2017 in increments of $100,000. The Government has now decided to defer the scheduled increases by two years. The Queensland Treasurer made the announcement as part of the 2013 14 Queensland Budget on 4 June 2013.
This means that the payroll tax threshold will now increase to from $1.1 million to $1.2 million from 1 July 2015 rather than from 1 July 2013.
Reforms for in house fringe benefits
On 22 October 2012, as part of the 2012 2013 Mid Year Economic and Fiscal Outlook, the Federal Government announced that the concessional tax treatment of in house fringe benefits would be removed if they are accessed through a salary sacrifice arrangement.
The concessional treatment for in house fringe benefits currently includes:
- an exemption from Fringe Benefits Tax (FBT) for the first $1,000 of the aggregate taxable value of certain fringe benefits provided to an employee; and
- a reduction in the taxable value of certain in house fringe benefits provided to an employee to an amount equal to 75 percent of the lowest price at which the property was sold to a member of the public or 75 percent of the notional value of the recipient's property when provided to the recipient.
Broadly, an in house fringe benefit is a benefit provided by an employer, or an associate of the employer or a third party, to an employee, where the provider of the benefit carries on a business that includes providing identical or similar goods or services to customers. For example, an electricity provider may provide electricity services to its employee or to an associate's employees. Or, a clothing retailer could provide the clothing it sells to its customers, to its employees.
The Tax Laws Amendment (2012 Measures No.6) Bill 2012, to implement the proposed changes, has passed both houses and now awaits Royal Assent. The amendments will apply retrospectively to benefits provided on or after 22 October 2012, being the date the changes were announced. However, for salary packaging arrangements entered into prior to 22 October 2012, the new rules will not apply until the earlier of 1 April 2014, or the first time on or after 22 October 2012 that the existing salary packaging arrangement is varied in a material way.
The Australian Tax Office (ATO) has announced administrative treatment for FBT returns pending the change in law. The outcome for the employer will depend upon whether the employer chose to lodge their FBT return in accordance with the existing law or alternatively, to anticipate the proposed changes.
Reporting obligations for employee share schemes (ESS) for 2013 income year
Employers that have provided an ESS interest to an employee (or their associate) during the 2013 income year (being a share in the company or a right to acquire a share in the company) are required to provide the employee with an ESS statement by 14 July 2013, if:
- the ESS interest is provided at a discount under a taxed upfront scheme; or
- the deferred taxing point for the ESS interest occurs during the 2013 income year (including in circumstances where the cessation time under the former rules for employee share schemes did not occur before 1 July 2009).
An employer is also required to report certain information to the ATO by 14 August 2013. Failure to provide an employee or the ATO with the required information in the approved from may result in an administrative penalty.
The Federal Government has announced a review of the policy settings for employee share schemes. Importantly for start up companies, as part of this review, the Government intends to consult with stakeholders to determine how best to address barriers faced by start-up companies, including examining the point at which share options are taxed.
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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.