Superannuation Guarantee threshold changes have been approved and will commence on 1st of July 2022. The effects will be an increase of costs by 10% of the $450 ie $45 each month for each employee who would have earned less than $450 a month provided they are over 18. whilst many businesses will not see a change businesses who engage numerous casual staff who work minimum hours will see the biggest impact, think our local cafes and the uni students they employ. Whilst the long term effects for the employee and our economy in many years to come will benefit from extra superannuation savings it’s important as a business owner to be prepared in your projections to take this increase into account.
Current super threshold legislation
Under the superannuation guarantee, employers must pay superannuation contributions in line with the super guarantee rate (currently 10%). This superannuation contribution is only applicable on an employee’s Ordinary Time Earnings when:
- An employee is paid $450 or more before tax in and month in most awards and is
- Over 18 years
- Under 18 years and working over 30 hours a week
It is important to be aware of what Ordinary Time Earnings (OTE) are, not only to ensure excess super isn’t being paid, but also to ensure ATO compliance.
Ordinary time earnings (OTE)
Ordinary Time Earnings (OTE) is a payroll category relating to annual payments made to an employee for their ordinary hours of work. It includes a range of payments, such as:
- Base salary
- Over-award payments
- Shift loadings
- Certain allowances
- Certain bonuses
- Certain leave
- Certain termination payments
The ATO provides an extensive overview of what is and isn’t included in Ordinary Time Earnings.
As Xero calculates super on Ordinary Time Earnings, it is incredibly important that the pay items are set up correctly. If the pay items are set up incorrectly, it’s easy to over or under calculate the required superannuation for employees.
New super threshold legislation
The bill to remove the monthly income threshold was passed in parliament last week. This means that from 1 July 2022, all employers must pay superannuation guarantee contributions on all Ordinary Time Earnings, no matter how little has been earned in the month.
This is welcome news for the superannuation industry; however, for all employers, this will have a significant impact, and we will touch on this in more detail in the near future.
The bottom line
Ensuring you pay and report your business super guarantee is critical. If you want to discuss your superannuation guarantee requirements or look into your process to make sure it’s meeting the requirements, feel free to contact us to arrange a meeting or book in online here.