Salary sacrificing to super allows an employee to forego part of their salary or wages and have the employer contribute this amount to their superannuation fund instead of paying it as cash. It reduces the taxable value of salary or wages, and is therefore beneficial to the employee in both reducing tax payable and increasing superannuation.
Up until now, employers were allowed to calculate superannuation guarantee contributions (SGC) on the reduced amount of salary or wages.
Firstly, as of 1 January 2020, SGC must now be calculated on the gross amount of salary or wages, before any salary sacrifice amount is deducted.
This means employers will have a higher superannuation contribution to make for any employees who previously had their super guarantee amounts reduced because of sacrificing part of their salary to super.
Example: an employee is paid $100,000 per annum exclusive of SGC and sacrifices $20,000 to super. The employer currently pays SGC on the reduced salary of $80,000, being $7,600. From 1 January 2020, the employer must pay SGC on the gross salary of $100,000, which will be $9,500, an increase of $1,900 per year.
The other big change with this rule is that salary sacrifice contributions will no longer contribute to the compulsory employer superannuation guarantee contributions. In some cases, employers were able to avoid paying any SGC, because the employee salary sacrificed an amount at least equal to the compulsory amount of employer contribution.
Because sacrificed amounts will no longer be counted towards employer contributions, if an employer has not fulfilled their super guarantee obligation and is required to lodge a super guarantee charge statement, the amount of super owing, (and any charges and penalties), will be calculated exclusive of any salary sacrifice amounts paid.
Example: an employee is paid $120,000 per annum exclusive of SGC and sacrifices $15,000 to super. The compulsory employer amount of 9.5% on $120,000 is $11,400. As the employee sacrifices more than this to super, the employer currently would have made no further contributions. Under the new rules, the employer must pay SGC on the gross salary, in addition to any salary sacrifice the employee makes. This means an increase of $11,400 per year.
Revise Employee Agreements and Remuneration Packages Now
We recommend that employers review all employee arrangements that include salary sacrifice to superannuation.
Employment agreements and remuneration packages may need to be revised to comply with the new rules so that it is clear that superannuation guarantee is calculated on the gross salary or wage before any amounts sacrificed.
We can assist with reviewing remuneration packages for your employees so you are not caught out by the new rules.