How an increase to super may result in a pay cut
Superannuation guarantee (SG) rates will increase from 1 July 2021. While this is good news for our retirement nest eggs, some employees may feel the impact with a deduction to their take-home pay. This article explains the SG rate changes, salary differences, and options available to those who are affected by a deduction to their wage.
The super guarantee (SG) is the minimum percentage of ordinary earnings that employers must contribute to superannuation for their eligible employees.
After years being stuck at 9.5% the SG rate is on the move again. It increased from 9.5% to 10% on 1 July 2021, and will increase by a further 0.5% each year until it reaches 12% from July 2025.
More money into super to provide a more secure retirement? What’s not to like about that? Well, it depends on your employment contract as to whether you are in for a welcome bonus or a nasty surprise when each annual increase in the SG kicks in.
Salary plus super, or super included?
If you are paid a base rate plus super then your employer should increase your super contributions by 0.5% with no change to your take-home pay. This is the likely to be the most common (and the best) outcome. It’s possible some employers may take the increases in SG into account when negotiating future wage increases, but this is an indirect and by no means certain outcome.
It’s a different story if you are paid on the basis of a total package, including super. In this case, and provided it doesn’t drop your pay rate below award minimums or the minimum wage, your employer may deduct the additional SG from your take-home pay. Not such a desirable outcome.
What can you do about it?
Just because an employer can reduce take-home pay to make up for the higher SG doesn’t mean they will. Many employers will wear the cost, and if that’s the case with your employer, all well and good. Also bear in mind that employers may use both types of contract, so just because your colleague at the next desk is paid on a salary plus super arrangement, you may not be.
With the outcome entirely up to your employer it’s important to talk to them. Find out if you are affected, what they plan to do, and if necessary see if you can negotiate an appropriate increase to your total package. If you have union representation this may be helpful.
It will all come down to the strength of your bargaining position. Employers who want to keep good employees and avoid the cost of employee turnover may be more willing to carry the cost of the increase. It’s also possible for your employer to take one approach this year and another next year, depending on business conditions.
While the drop in take-home pay after the initial SG increase may be relatively small, by 2025 it will be a much greater amount. It’s important to have that conversation with your employer as soon as possible
For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6626 3000.
Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
