The real figures aren't always so super
Both Labor and the Coalition are committed to increasing the guarantee over the next few years until it reaches 12 per cent, though each has a different timetable for reaching the 12 per cent.
While all employers have to pay the increase in super for this financial year, as it is the law, some employees are going to have to negotiate with their employers if they want to get the benefit. That is because some employees, usually senior staff, are on ‘‘total remuneration’’ packages. And it is quite possible these staff, while receiving the higher superannuation guarantee, will have a cut to their pay to keep the total remuneration package the same.
The other category of workers who may be no better off is those whose employers pay a premium or margin above the guarantee. These employers may decide to reduce the premium they pay on super by the same amount as the increase in the guarantee.
Most workers will receive the higher guarantee with no change in their pay because they are covered by industrial awards and agreements.
But those on packages that are subject to individual pay negotiations are well advised to find out what the employer intends to do about the rise in super now, rather than waiting until the next pay review. It may come down to wording of the employment contract over how the super is treated.
A survey late last year by human-resources consultant Aon Hewitt found about 30 per cent of employers pay more than the guarantee. Of these employers surveyed, only about one in 10 indicated that they intended to maintain the same margin when the guarantee started rising. The rest said they intended to decrease the margin as the guarantee rose, absorb the rises in the guarantee until they were paying the legal minimum, or that it depended on the outcome of enterprise bargaining.
Some employers follow the letter of the law but not its spirit, by calculating the guarantee on the employees’ ordinary weekly earnings, less the pay that the employee sacrifices. There is nothing illegal about this. The anomaly could be fixed by a change in the wording of the law to restrict the definition of salary for the guarantee so that it is ‘‘salary plus any salary sacrificed’’. But anyone thinking of sacrificing should ask their pay office whether sacrificing means they receive less compulsory super.
See Money's John Collett and Clancy Yeates discuss the latest personal finance news at theage.com.au/money
Frequently Asked Questions about this Article…
The superannuation guarantee rose from 9% to 9.25% (effective from the Monday noted in the article). Both major parties have committed to lifting the guarantee to 12% over coming years, though they have different timetables. For everyday investors, it means compulsory super contributions will slowly increase, boosting retirement savings for many—but not automatically for everyone.
No. While most workers covered by industrial awards and agreements should receive the higher guarantee with no pay change, some employees—especially senior staff on 'total remuneration' packages or those whose employers already pay a premium above the guarantee—may see their take-home pay reduced so their overall package stays the same.
Yes. Some employers may offset the higher compulsory super by reducing cash pay for staff on total remuneration packages or by cutting the extra margin they previously paid above the legal minimum. This is legal in many cases, so employees should check their contracts and ask employers what they plan to do.
Find out now how your employer intends to treat the rise. Check the wording of your employment contract, talk to HR or your pay office, and consider negotiating at the next pay review if needed. The article recommends addressing this sooner rather than waiting.
Some employers calculate the guarantee on ordinary weekly earnings less any pay an employee sacrifices. That's legal under current arrangements. If you salary sacrifice, ask your pay office whether that reduces the base used to calculate your compulsory super contributions.
A survey by human-resources consultant Aon Hewitt found about 30% of employers paid more than the guarantee. Of those, only around one in ten intended to maintain the same premium margin as the guarantee rose; others said they'd decrease the margin, absorb rises until they hit the legal minimum, or that decisions depended on enterprise bargaining outcomes.
The law requires employers to pay the increased super for the financial year, but it doesn't stop employers from structuring pay packages or margins in ways that offset the increase. Workers covered by industrial awards and agreements are generally protected from unilateral pay cuts tied to the super rise, but anyone on individually negotiated packages should check their contract.
Ask your employer or HR what they intend to do about the rise, review your employment contract for wording on super and total remuneration, check whether you’re covered by an industrial award or enterprise agreement, and consult your pay office about any salary sacrifice arrangements that might affect the guarantee calculation.
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