Australia has one of the most successful superannuation systems globally, designed to provide much needed financial security to our ageing population.
Since 2014, our superannuation system, including guarantee rates, have remained largely unchanged. However, on 1 July 2021, sweeping changes to our superannuation system came into effect, including an increase in the guaranteed rate and systemic reforms.
While the aim of these changes is to improve Superannuation for all Australians, they may also increase the compliance burden on small businesses, requiring them to adapt their payroll processes and systems.
To help your business navigate these complex requirements, here’s an overview of the changes to Superannuation introduced this year and their impacts:
Superannuation Guarantee (SG) rate increase
From 1 July, the Superannuation Guarantee (SG) rate increased from 9.5% to 10%. It will rise 0.5% each year thereafter until it reaches 12% by July 2025.
While some businesses may be able to absorb the rise in costs, others may be faced with difficult decisions around how to make up for the 0.5% increase.
For businesses unable to allocate additional money toward employees’ take-home pay, it’s crucial that you are now aware that salary sacrifice arrangements cannot be used to account for the extra 0.5%.
Penalties for non-compliance
It is more important than ever to ensure your organisation is paying the correct amount of Superannuation to its employees, given the ATO’s severe penalties for non-compliance.
Underpaying an employee’s Superannuation can result in the employer paying 10% interest on the shortfall, in addition to a $20 administration fee per employee, per quarter.
It’s also critical to be aware of the significant implications of missing a superannuation payment.
Changes to superannuation concessional caps
In addition to the SG rate increase, from 1 July 2021, concessional superannuation caps were raised, allowing employees to voluntarily contribute more to their retirement nest egg.
For individuals, the cap on concessional contributions has increased from $25,000 a year to $27,500. At the same time, the cap on non-concessional contributions has also increased from $100,000 to $110,000 a year.
But what does this mean for small business owners?
It’s important for employers to remind their employees that concessional contributions made in excess of this amount may be subject to higher tax rates and an excess contributions charge.
In addition, the Federal Government has also set a maximum limit on paying an employee’s SG contributions. For 2021/22, the limit is $58,920 per quarter, so you only need to pay SG contributions on any amount an employee earns up to $58,920 per quarter for this financial year.
Introduction of Super Stapling
One of the most significant reforms to the superannuation system is the introduction of “Super Stapling.” From 1 November 2021, employers are obligated to make contributions to new employees existing superannuation fund if they have one. The employee will then be “stapled” to that fund, which will follow them from job to job.
The measure is designed to reduce the number of Australians with multiple superannuation accounts; however, it is also likely to place increased pressure on small businesses to keep up with the associated compliance requirements.
The introduction of super stapling means employers will need to update their onboarding process for new hires to ensure the following conditions are met:
- If your new hire nominates a preferred fund, you must make superannuation payments into this account.
- If your new hire does not nominate a preferred fund, you must contact the ATO to see whether the employee has an existing fund – the ‘stapled fund’ – and you must make superannuation payments into this account; or
- If your new hire does not have a stapled fund and does not nominate a fund, you must create a new account with your nominated default super fund.
Phase two of Single Touch Payroll
The first phase of Single Touch Payroll (STP) was launched in 2019 for small businesses (i.e. those with 19 employees or less) as a means of reporting tax and superannuation information correctly to the ATO. From 1 January 2022, the second phase of STP will commence – six months later than initially planned.
As part of the second phase, employers will be required to report additional information through STP on or before each payday. This will extend the reach and scope of STP beyond the ATO to include Services Australia and other government agencies.
For businesses and their software vendors, making the changes necessary to provide the increased level of employee data required by STP Phase 2 will inevitably be a monumental task. To avoid issues, partner with a payroll software vendor you can trust and who can guide you through the process of significant change.
Changes to superannuation – Setting up for success
While the superannuation changes will positively impact Australians’ superannuation balances, small businesses are now faced with additional requirements to ensure payroll compliance. Amidst continuing lockdowns across much of the country and a shaky economic environment, small businesses should be looking at ways to outsource risk and compliance when it comes to their payroll systems. By investing in the right payroll technologies, small businesses should be able to mitigate the impact of the new changes to Superannuation.
Written by Luke Thomas, Product Marketing Manager, People and Payroll, The Access Group