Back to Listing

SG Increase – Is your business ready for it?

18 April 2013

SG Increase – Is your business ready for it?

It is a timely reminder with end of financial year approaching, to ensure your payroll and payment systems are ready to handle the increased superannuation guarantee (SG) requirements.

SG is the official term for compulsory superannuation contributions made by employers on behalf of their employees. An employer, regardless of whether they are a small or large business, must currently contribute the equivalent of 9% of an employee’s salary.

On 29 March 2012, the proposed increase in SG entitlements received Royal Assent and became law, which means SG contributions will definitely increase to 9.25% from 1 July 2013, and gradually increase to 12% by 1 July 2019. The increase in SG contributions is a stepped process starting with a 0.25% in the 2013/2014 financial year – refer the table below.

Superannuation Guarantee Entitlements

Financial Year

Rate (%)

2011/2012

9

2012/2013

9

2013/2014

9.25

2014/2015

9.5

2015/2016

10

2016/2017

10.5

2017/2018

11

2018/2019

11.5

2019/2020

12

Source: Adapted from table appearing in Australian Government fact sheet ‘Superannuation – Increasing the Superannuation Guarantee rate to 12 per cent’ located on the ‘Stronger, Fairer, Simpler’ website (www.futuretax.gov.au)

 

There will continue to be some resistance from employers to this policy.  Employers, according to the federal government, have had plenty of time to prepare for the increase. An interesting challenge in selling the SG increase to Australian Businesses is that the company tax rate was supposed to fall to 29% (2014).  This was intended to soften the SG increase for employers, however, the company tax drop is not going ahead. 

Statistics provided by the Australian Bureau of Statistics website 2011 highlights the vast number of SMEs paying workers that will need to consider and prepare for the impact.  As at June 2011, there were 2.1 million businesses in Australia, of which 96%, represent small businesses (turnover is less than $2.0 million). In 2010-11, 93.5% of all private businesses are micro businesses (less than 4 employees). Over 2.0 million businesses employed less than 20 staff, broken down as follows:

  • 826,389 (38.8%) employing businesses (of those 161,400 in Qld).
    • 1,306,023 (61.2%) non-employing businesses (of those 268,000 in Qld).
    • 89.5% of employing businesses have less than 20 employees.

 

# Employing Business

%

Employee #

508,674

61.5%

1-4

230,638

27.9%

5-19

81,006

9.8%

20-199

6,071

<1%

200+

826,389

100%

 

 

Businesses engaging independent contractors (includes non employing businesses and individuals with ABNs) may still have an obligation to remit SG without realising it. 

Given the lengthy lead time, employers are expected to have taken the SG increase into account when negotiating future wage agreements. The SG rate increase should not stop real wages growing for employees.

Checklist to prepare for 30th June 2013:

 

1. Where feasible and cashflow permits pay June 2013 quarter super before 30/6/2013 to have the deduction fall in 12/13 year (effective tax planning).

 

2. Review employee contracts and check concessional contribution limits.

3. Confirm salary sacrifice arrangements (due consideration to concessional limits).

4. Market salary reviews quoted as SG inclusive or exclusive to take the SG increase into account.

5. Amend payroll systems, payslips and direct debits.

6. Superannuation may need to be remitted for some independent contractors (individual ABNs). Review the common law employee meaning and wages definition for payments to workers.  There is common misconception you can contract out of the requirement to pay SG.

 

Please contact Kylie Lamprecht (Pitcher Partners) if you would like to discuss your specific circumstances.

 

Share