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For small business owners and payroll managers, staying up-to-date on the latest superannuation changes is essential. And, with the Australian Superannuation Guarantee (SG) set to increase from 10.5% to 11% from 1st July 2023, it’s important to understand what this means and how it could affect your business. As an employer, this increase, and subsequent increases, will have an impact on your payroll management and accounting systems.

The Superannuation Guarantee contribution (SGC) rate will rise on 1 July 2023 from the current rate of 10.5% to a new rate of 11%. This is the next rise as part of the ongoing upwards march in the SGC rate of 0.5% per annum until it reaches 12% on 1 July 2025.

SG is calculated at the prevailing rate at the point in time that the payment giving rise to the SG liability arises.

In the case of a payment to an employee, this is the point in time that the salary and wage is paid, irrespective of whether some or all of the period of service giving rise to the payment occurred prior to the end of the financial year.

In the case of a payment to a contractor which is principally for labour, this is the point in time that the contractor’s invoice is paid.

Example

Thomas is paid fortnightly in arrears, on a Wednesday. The last pay date for Thomas in the 2022/23 financial year will occur on Wednesday 21 June. An SG rate of 10.5% will apply to this pay. The first pay date for Thomas in the 2023/24 financial year will occur on Wednesday 5 July. An SG rate of 11% will apply to this pay as it has taken place on or after 1 July 2023. This is the case even though some of the service period which gives rise to the pay on 5 July took place in the 2022/23 financial year when the SG rate was still 10.5%.

Employers will also need to consider the impact of the change in SG rate on Awards or Industrial agreements where they apply to an employee.

Potential effect on employee’s net pay

Some employees will have a salary package which is defined in SG-exclusive terms. In these cases, the employee will see no change to their gross or net pay (at least insofar as the changes to the SG rate are concerned). Rather, they will simply see an increased amount of SG attributed to their pay.

Example

Sasha’s agreed annual salary package is “$60,000 per annum plus applicable SG”. This means that in 2022/23, her salary package comprises a gross of $60,000 per annum plus SG of $6,300 (being 10.5% of $60,000). Sasha is paid a monthly gross salary of $5,000, to which SG of $525 (being 10.5% of $5,000) is contributed to her super fund. 

From 1 July 2023, her gross and net pay (at least insofar as the changes to the SG rate are concerned) will be unchanged, however the SG contributed to her super fund will increase from $525 to $550 (being 11% of $5,000). Effectively, this will see Sasha’s total remuneration (in annual terms) increase from $66,000 to $66,600.

By contrast, some employees will have a salary package which is defined in SG-inclusive terms. In these cases, the employee will see a reduction to their gross pay and, as a result, their net pay.

Example

Sasha’s agreed salary package is “$66,000 super-inclusive”. This means that in 2022/23, her salary package comprises a gross of $60,000 per annum plus SG of $6,300 (being 10.5% of $60,000). Sasha is paid a monthly gross salary of $5,000, to which SG of $525 (being 10.5% of $5,000) is contributed to her super fund. 

From 1 July 2023, her gross and net pay (at least insofar as the changes to the SG rate are concerned) will fall. Her new annual gross will be $59,459.46 (being the figure which, when 11% super of $6,540.54 is added, gives a total of $66,000).

Effectively, this will see Sasha’s gross remuneration before super (in annual terms) decrease from $60,000 to $59,459.46.

In the latter example, where the employee will experience a reduction in their “take-home pay,” the employer may wish to consider providing the employee with some advance notice of what will be occurring and the reasons why. The benefits of this are two-fold:

1. it may assist in reducing the extent of queries received by employees who may otherwise have thought the “short pay” was due to a payroll error;
2. it gives a “heads-up” to the employee of the upcoming reduction to their take-home pay which may assist them in proactively managing any impacts of that in terms of their personal budgeting, the honouring of direct debits occurring on their bank account, etc.

What Can You Do to Prepare for the Australian SG Increase?

If you’re a small business owner or payroll manager, it’s important to start preparing for the SG increase now. Key steps you can take include:

• Reviewing your payroll systems and software to ensure they are set up correctly to calculate and apply the SG increase
• Budgeting for the increased SG payments and adjusting your cash flow projections accordingly
• Check your specific obligations on the ATO website

The Australian Superannuation Guarantee increase is an important change that will impact all businesses employing staff in Australia.  We can help you understand your obligations and make sure you remain compliant so please get in touch if you need advice around this.