With the latest statistics from the ABS revealing that Australians now intend to work longer than ever before, retirement is the word on everyone’s lips. More specifically, superannuation.
Understandably, the Australian government is also concerned about how its citizens will support themselves post-retirement. Cue the introduction of the national Superannuation Guarantee. Engineered to help Australians build retirement funds throughout their working lives, the compulsory system was introduced in 1992, and has been helping citizens secure financial security ever since.
While the concept of superannuation is familiar to most Australians, too many fail to comprehend exactly how it works, and why it’s so important to take advantage of the government accredited system.
So, whether you’re a casual employee, a full time breadwinner or an independent employer that’s still learning the ropes, we’ve put together a guide covering everything you need to know about the Australian Superannuation Guarantee.
The basics of the Australian Superannuation Guarantee
At its core, the Australian Superannuation Guarantee is a compulsory system of retirement fund support. The system exists to support Australian employees, and is paid for by employers.
As a non-discriminatory system, the Australian Superannuation Guarantee encompasses all employees aged over 18, with a monthly income of $450 a month before tax. Under 18s can be eligible in some circumstances, as long as they’re working more than 30 hours a week, and earning over $450. From casual juice bar workers and part time secretaries to full time managers, the system is designed to benefit all Australians.
Superannuation contributions are calculated based on a percentage of the ordinary time earnings of employees. So, the more hours an employee clocks up, the more super they’ll earn. Of course, calculations are also heavily dependent on wages, which means higher earners receive higher contributions.
The 9.5% rule
Currently, the Australian Superannuation Guarantee rate is 9.5%. This means that employers are obliged to pay 9.5% of their employee’s pre-tax salary into a nominated super fund. This includes regular wage, as well as shift allowances, commissions and some bonuses. As a general rule of thumb, overtime isn’t usually included.
Case Study 1: |
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| James earns $55,000 as a client relationship manager for a small financial services firm. As a full-time, salaried employee he doesn’t receive shift loadings, allowances or commissions of any type. For the 2015 – 2016 financial year, James’ employer must pay $5225 into his nominated superannuation fund by his employer. |
Case Study 2: |
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| Gemma earns a base rate of $20 an hour as a part-time sales assistant in a retail store, where she is consistently rostered on for 20 hours a week. She also earns a 10% commission on sales. For the 2015 – 2016 financial year, Gemma has earned $23,787 at her base rate. She has also made $230,292 in sales throughout the year. That means with a take-home pay of $46,816.20, her employer ends up contributing $4447.54 over the year. |
Where is the cash stashed?
All contributions are paid into a complying superannuation fund or retirement savings account. Under normal circumstances superannuation can’t be accessed until earners turn 65, or meet another ATO requirement.
Superannuation Guarantee legislation for employers
For employers, superannuation is a major responsibility. As a nationwide system the government is tight fisted when it comes to securing Australian employees the contributions they deserve. Basically, there are big fines in place for employers that fail to comply.
Legally, responsibilities are outlined under Superannuation Guarantee (SG) legislation, which sets out rules and rates. When putting together a superannuation strategy for employees, businesses should take a few key factors into account.
- Firstly, superannuation should be paid four times a year, at a minimum. The government sets four quarterly due dates, which mean lump annual sums aren’t an option.
- If a business fails to pay superannuation on time, the Super Guarantee Charge comes into effect.
- Contributions are paid into a complying super fund, which is usually nominated by the employee.
- The maximum superannuation contribution base is $51,620 per quarter, which means that whether an employee earns $51,620 or $55,000 per quarter, their employer is only required to contribute $4,903.90 to the employee’s super fund per quarter.
- There’s no getting around paying super, and it’s best not to try as the repercussions can be nasty, and expensive. Whether employees are casual, part time, full time or even a family member or company director, the Australian Superannuation Guarantee still stands.
- It’s also important to note that even temporary residents must be paid superannuation. When they leave Australia they can reclaim contributions by filing a ‘departing Australia superannuation payment’ request.
Is there a cap?
For high earners, the Australian Superannuation Guarantee is capped at a salary of $206,480. For any income earned after this amount, employers are not obliged to pay the 9.5% superannuation charge.
Voluntary contributions
As well as building superannuation accounts via an employer, employees can also pad out their funds with voluntary contributions. When it comes to beating the tax man and pushing down personal bills, voluntary superannuation contributions are a fantastic resource.
Before-tax contributions can be arranged through an agreement with the employer, a system that’s more commonly known as salary sacrificing. After-tax contributions from take-home pay can also be made.
Looking forward to the future
As mentioned earlier, there’s no escaping the fact that Australians are working for longer. Currently, Australia’s Super Guarantee rate is 9.5%. However by 2025, the government plans to gradually increase the national benchmark to at least 12%. The first increase will take place in July 2021, with .5% increases introduced each consecutive year.
Whether you’re an employer or an employee, understanding the magnitude of superannuation is a must. Yes, it can seem like a far-off prospect for teenage employees working at fast food restaurants, not to mention a financial burden for employers. But the reality is that superannuation is an important pillar of the Australian economy, which should be respected by both the employees it benefits, and the employers that help their workers build better futures.
Find out more about your requirements as an employer, along with other workforce management advice, on the Ento blog today.