Employers take note – Changes to the minimum Superannuation Guarantee Contribution effective 1 July 2021

Currently, the minimum superannuation guarantee contribution (SGC) required to be paid to all employees (and certain contractors) is 9.5% of an employee’s ordinary time earnings. However, in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth) the minimum SGC is legislated to increase by 0.5% increments each year from 2021 to 2025.

As such, on 1 July 2021, the minimum SGC will be increased to 10%.

Employers need to be aware of this change and consider the effect it will have on their employee’s remuneration agreements. Ultimately, the impact that the increase in the minimum SGC will have on an employee’s remuneration is largely dependent on the remuneration terms set out in the employee’s contract of employment.

The Remuneration Agreement

Ordinarily, there are two forms of remuneration agreements made between employers and employees. Either the employer will pay to the employee:

  1. A base salary plus SGC; or
  2. A total remuneration package including SGC.

Can SGC increases be offset against wages?

Whether an employer is permitted to offset the cost of the SGC increase against an employee’s salary will be dependent on the terms surrounding remuneration and superannuation expressed in the employee’s employment contract. Some employment contracts will provide that the employee’s remuneration package may be adjusted so that it is commensurate with SGC increases.

However, often employment contracts are silent on this issue and simply provide that an employee’s “total remuneration package is $amount inclusive of superannuation“. In such circumstances, employers may have sufficient authority to offset the increased SGC against the employee’s base salary so that the increased SGC is absorbed within the employee’s remuneration package. Whilst doing so would have no direct financial impact on an employer, employers should consider the impact that offsetting the increases in SGC will have on employee morale.

In circumstances where a remuneration agreement provides that the SGC is separate from the salary component, employers are not authorised to reduce the employee’s salary. Any attempts by an employer to unilaterally reduce an employee’s salary would give rise to two claims:

  1. Damages for repudiation of the employee’s contract of employment, which may in turn give rise to a claim of unfair dismissal; and
  2. A claim that the employer has made an unauthorised deduction from an employee’s salary pursuant to section 324 of the Fair Work Act 2009 (Cth).

If your business prepared for the changes?

The changes to the minimum SGC highlights for employers the importance of ensuring that employment contracts are properly drafted to anticipate changes to superannuation laws. Additionally, the changes act as a reminder for employers to regularly review their contracts of employment to ensure they comply with legislative changes.

Before taking steps to reduce an employee’s pay commensurate with the increases to the minimum SGC, employers should seek legal advice to confirm such steps are lawful and would not constitute any breaches of the employment contract or national workplace law.