From 1 July 2021, the superannuation contributions employers are required to make will increase to 10%. Have you checked to ensure whether your payments to employees will change from 1 July? There is one contract provision that may be lurking in your employment contracts, that you may not be aware of that can affect the calculation of your payment obligations to employees.
1. WILL YOUR TOTAL COSTS OF EMPLOYMENT CHANGE?
Your staff will likely be engaged under a written employment contract or contractor agreement. Ordinarily, the agreement will set out their remuneration in terms of an annual salary - or wages based on, say, an hourly rate. Usually, the contract will say that the salary / wages are inclusive of superannuation or that superannuation is added to the salary / wages.
Total remuneration payable increases + gross pay unchanged
Where the contract states that superannuation is in addition to the salary / wages, the gross pay won't change but the superannuation contribution will increase by 0.5%. For example, remuneration is $80,000 + superannuation. From 1 July, you will be paying the employee $80,000 + 10% superannuation. In this case, the total remuneration payable increases but gross wages do not change.
But here's the tricky bit to look out for.
Total remuneration payable unchanged + gross pay decreases
Many employment contracts / contractor agreements will say that the total remuneration package (salary + superannuation) will absorb any existing or newly introduced payments or benefits to which the employee becomes legally entitled ("Total Remuneration Clause"). This means that the total package doesn't change on 1 July; which, in turn means that gross pay decreases to allow for the superannuation component to increase by 0.5%. In our example above, the salary will reduce to $79,600 to absorb the additional 0.5% increase in superannuation.
But that's not all...
If there is a Total Remuneration Clause, you need to ensure that any reduction in salary (and wages) does not breach minimum wage requirements – more on this below.
Another scenario where total remuneration payable unchanged + gross pay decreases
Another scenario where the total remuneration package is unchanged, is where the contract states that salary / wages are inclusive of superannuation. Again, in this scenario, the employee's gross payments will decrease to account for the additional 0.5% superannuation payment.
2. MINIMUM WAGE CONSIDERATIONS
So, you've done your calculations and the employee's gross wages / salary will be reduced. In this case, you will need to ensure that if the employee is covered by a Modern Award, the new wages do not breach any minimum pay requirements. If it is lower than the minimum required pay, you must not reduce the wages to that level.
A 0.5% increase to the superannuation guarantee is scheduled to take place on 1 July each year for the next few years, so you will need to perform the necessary calculations each year to ensure you don't breach any minimum wage requirements in future.
In order to avoid having to amend the contracts annually, you should consider amending your employment contracts (in most cases, you'll need the employee's agreement) so that:
- They include a Total Remuneration Clause, where appropriate; and
- For employees who are covered by a Modern Award, any changes to salary/wages as a result of changes to superannuation obligations will only reduce the employee's gross wages provided it does not breach any minimum wage requirements.
