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Superannuation changes: Important client conversations for EOFY 2022

Changes arriving to super will have implications for employers. For business advisors, now’s the time to make sure your clients are prepared for 1 July.

Superannuation changes: Important client conversations for EOFY 2022
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There are two key changes arriving in super this year that were announced as part of last year’s Federal Budget, which may cause some employers to change their hiring strategies as a result.

What’s changing in super this year?

The primary change will impact all employers and employees, with the Superannuation Guarantee (SG) rate to increase from 10 percent to 10.5 percent.

Julie Slapp, General Manager of Wealth at Flare HR, explains the history of SG increases in Australia.

“When Superannuation Guarantee legislation was introduced to super in 1992 it expanded coverage of super to 72 percent of workers in Australia at a rate of three percent.

“The Government has continued to expand coverage and increase the rate so that by 2003 the super guarantee rate had increased to nine percent and super covered 90 percent of Australian workers.”

And with SG hitting 10.5 percent this year, the Government has also set in motion a change that will further expand coverage of super among Australia’s workforce – removal of the $450 super threshold.

“From 1 July 2022 they will expand coverage further by removing the before tax income floor of $450 on an employer being required to pay super,” said Slapp.

How will these changes impact employers?

As super expands to include more people as the rate is adjusted upwards, the added costs will be initially worn by employers.

However, it won’t hit all employing businesses equally. As Slapp notes, a 2020 report from Treasury called the ‘Retirement Income Review’ indicates some three percent of the entire Australian workforce (around 300,000 people) have been excepted from SG contributions due to the $450 threshold.

“Those people are mostly young, lower income and part-time workers,” said Slapp,” and almost two-thirds of them are women.

“So this change will particularly impact employers in industries that hire young, part-time workers such as the hospitality and retail sectors.”

In short, every employer with part-time and low-wage workers should be aware of these changes and have priced in both the requirement to pay superannuation for staff where previously they haven’t needed to, as well as the 0.5 percent increase on SG across the board.

Advising employers on addressing super changes

Whether business owners choose to pay staff more or simply take the new super amount from their existing salary is the key discussion advisors should have with clients, followed by a discussion around how to communicate these changes to staff.

“Many Australians would be unaware of this change,” agreed Slapp. “However, if a worker is making $450, then this could mean $47.50 less in their hands from 1 July.

“This is a significant difference, especially for the lowest-paid workers, so making certain they’re aware and prepared is priority one.”

On the other hand, Slapp says there may be good reasons for an employer to consider swallowing the costs of the increases, effectively paying more in salaries and super so that their workers don’t see less in their regular paypacket.

“Looking to the future, it’s worth all Australian employers consider whether wage inflation is a key concern in their industry.

“For example, if your competitors start paying more and giving greater benefits (such as permanent employment rather than casual) to attract critical staff, will you also need to do the same?”

For business advisors, these are the sorts of conversations you’ll want to be having with all employing clients before the end of the 2022 financial year.

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