A superannuation guarantee loophole that allowed employers to use salary sacrificed contributions to make up part of their required super guarantee contributions has been closed. From 1 January 2020, employers must make the full amount of mandatory super guarantee contributions and cannot use salary sacrificed amounts to reduce that amount. Depending on the type of employment agreement you have with your employer, it could mean more money for your retirement.
The concept of super guarantee should be a very familiar to everyone, particularly anyone who is an employee, as it makes up the bulk of future retirement income. You may not know the particular name, but you would know about the requirement for employers to contribute 9.5% of your salary or wages into a nominated super account. You could also be salary sacrificing an amount of your salary and wages to put extra into your super.
Did you know that, previously, salary sacrificed amounts counted towards employer contributions which meant a potential reduction in an employer's mandated super guarantee contributions. In addition, employers were also able calculate super guarantee obligations on a lower post salary sacrificed earnings base.
Depending on the type of employment agreement you have with your employer, if you salary sacrificed an amount equal to or exceeding the super guarantee that the employer was required to pay, your employer could've potentially not made any additional contributions under the super guarantee.
Therefore, employees who salary sacrificed could've unknowingly been short-changed and end up with lower super contributions as well as a lower salary.
However, this all changed from 1 January 2020, from that date, amounts that an employee salary sacrifices to superannuation cannot reduce an employer's super guarantee charge, and do not form part of any late contributions an employer makes that are eligible to be offset against the super guarantee charge.
From that date, to avoid a shortfall in super guarantee charge, employers must contribute at least 9.5% of an employee's ordinary time earnings (OTE) base to a complying super fund. OTE base consists of their OTE and any amounts sacrificed into superannuation that would've been OTE, but for the salary sacrifice arrangement.
Thus, under the new law, where an employer has a shortfall, the amount of shortfall is calculated by reference to their employee's total salary or wages base, which includes any amounts sacrificed into superannuation.
The following simple example illustrates the effect of the old law versus the new law.
| Old law |
New law |
|
| OTE | 15,000 |
15,000 |
| SG contribution entitlement (15,000 x 9.5%) | 1,425 |
1,425 |
| Salary sacrifice | 1,000 |
1,000 |
| Actual employer contribution (using salary sacrifice amount to reduce SG contribution) | 425 |
Not allowed |
| Actual employer contribution under the new law | – |
1,425 |
| Total contribution to super (including salary sacrificed amount) | 1,425 |
2,425 |
Under the old law, the employee could potentially miss out on $1,000 of super contributions by the use of salary sacrifice amount to reduce SG contribution and the employer would not be subject to any super guarantee shortfall. With this loophole closed, the employer now needs to contribute the full amount of the super guarantee entitlement and the salary sacrificed amount from the employee. If the employer does not contribute the full amount, they will have a super guarantee shortfall of $1,000 which is subject to a non-deductible penalty (super guarantee charge).
Unsure whether you've been paid the correct super?
There's been many prominent cases in the media of employees being paid the incorrect amount of wages and super by a range of employers. If you're unsure whether you've been short-changed in terms of super contributions from your employer, we can help you work that out.
