Superannuation
Superannuation Guarantee rate
The Superannuation Guarantee rate is the percentage of ordinary time earnings that employers must pay as super guarantee, set by legislation and changed over time.
The Superannuation Guarantee rate is the percentage that an employer must apply to an eligible employee's ordinary time earnings to work out the minimum super contribution for that period. The rate is set by legislation and has increased in steps over the years, so employers cannot assume that last year's rate still applies. The current rate is always shown on the ATO website, and it is the figure that should be built into payroll software at the start of each financial year.
The rate applies to ordinary time earnings, not to all payments. This means overtime and some other payments are excluded, while salaries, wages, commissions and many allowances are included. The rate is then applied to the lower of OTE or the maximum super contribution base for the quarter. Employers should be careful to use the rate that applies to the period in which the wages were earned, since a change can happen part way through a quarter.
Changes in rate often take effect on 1 July, which is the start of the financial year, and are widely publicised by the ATO and in payroll software updates. When the rate changes, employers need to update software, check award and contract terms, and consider the effect on budgets. Where an employment contract describes pay as inclusive of super, a rate increase can reduce the cash wage unless the contract provides otherwise. Employers should get advice if unsure.
If an employer pays less than the correct rate, they are likely to have a shortfall and may be liable for the super guarantee charge. This is true even where the error was an honest mistake in the payroll set-up. The ATO has tools to detect underpayment, including Single Touch Payroll data, and employees can also report a problem. Correcting the underpayment promptly is better than waiting for a notice.
GST does not apply to the rate or to the contributions it generates. The contributions are outside the GST system and no credits are available, but they are generally tax deductible for the employer when paid on time. The costs form part of the overall cost of employing staff, which small businesses should factor into their pricing and, where GST applies, their GST-inclusive prices.
A common mistake is to continue using an old rate after a legislated increase. Another is to confuse the rate with the concessional contributions cap. The rate is the percentage the employer must pay. The cap is the amount a person can contribute at concessional tax rates in a year.
This is general information only, so confirm the current rate with the ATO or a registered tax professional.
Worked example
An employee has OTE of $15,000 in a quarter. To show the arithmetic only, assume a hypothetical rate of 10%, which is not the current rate. Super is $15,000 x 10% = $1,500. If payroll software were still set to an older, lower rate such as a hypothetical 9.5%, it would produce $1,425, leaving a $75 shortfall for the quarter that could attract the super guarantee charge.
Practical tips
- Update the rate in payroll software every time the legislated rate changes, normally from 1 July.
- Check contracts that say pay is inclusive of super, because a rate rise may affect the cash pay.
- Confirm the current rate on the ATO website, since it is changed by legislation.