Important changes to employer superannuation guarantee obligations and salary sacrifice arrangements

The Australian Taxation Office (ATO) has recently released a Guidance Note (GN 2020/1) which contains information for employers, payroll software providers and intermediaries who may need to change the way they calculate their superannuation guarantee obligations.

This follows on from legislative amendments which prevent salary sacrifice arrangements from operating to reduce employees’ ordinary time earnings (OTE) on which superannuation guarantee is payable.

Broadly, amounts included in OTE are generally what your employees earn for their ordinary hours of work, including wages and salary and other payments such as commissions, shift loadings and allowances. Overtime payments generally do not constitute OTE.

The following legislative amendments apply to quarters beginning on or after 1 January 2020:

• Employers are now required to pay superannuation guarantee on their employees’ OTE base, which is the sum of their employees’ OTE and any other OTE amounts which have been salary sacrificed into superannuation.
• Superannuation contributions to an employee’s fund under an effective salary sacrifice arrangement no longer count towards an employer’s superannuation guarantee obligations.

The ATO advises that if employers have calculated their minimum superannuation guarantee contributions on the reduced OTE (i.e. excluding salary sacrificed amounts), employers must ensure their calculations are adjusted with effect from 1 January 2020.

Calculation of superannuation guarantee relating to other sacrificed amounts (such as salary sacrifice arrangements for property, cars or other expense payments) are not impacted by these changes.

Example

Assume an employee has a gross weekly wage of $2,500 which is entirely OTE. The employee sacrifices $500 per week to superannuation and $300 towards a novated car lease.

Prior to the amendments, the employer calculated the superannuation guarantee liability on $1,700 ($2,500 – $800), resulting in a contribution of $161.50 ($1,700 x 9.5%).

In contrast, the employer’s superannuation guarantee liability must now be calculated on a weekly OTE base of $2,200 ($2,500 – $300), resulting in a minimum contribution of $209.

Talk to our Tax and Wealth team and Workplace Relations team to understand how the legislative changes impact on your superannuation guarantee obligations or if you would like to discuss your liability to pay the superannuation guarantee charge as a result of an underpayment of wages, including to take advantage of the Superannuation Guarantee Amnesty.