Salary sacrificing and the superannuation guarantee
Employers should take note of the new rules that became law on 28 October 2019, regarding the application of compulsory superannuation guarantee to salary sacrificed superannuation amounts.
From 1 January 2020, where an employee salary sacrifices part of their salary into superannuation contribution benefits, these superannuation contribution amounts will be subject to further 9.5 per cent superannuation contributions. Employers who currently contribute the 9.5 per cent superannuation guarantee based on the cash salary only will need to update their systems to comply with the new law by 1 January 2020.
We also note that where the arrangements between the employer and the employee is such that superannuation contributions (including salary sacrifice contributions) are quoted on top of a remuneration package (rather than within the package), and the employer doesn’t currently contribute based on the full cash plus salary sacrifice contributions package, then those employers will have additional costs from 1 January 2020. We recommend that employers review all salary sacrifice arrangements for impacts for compliance with the new law.
For example: Remuneration $100,000 per annum (excluding superannuation guarantee contributions). Employee salary sacrifices $10,000 into superannuation; therefore, $100,000 remuneration is made up of $90,000 cash salary and $10,000 benefits. Prior to 1 January 2020, the employer was only obligated to contribute superannuation guarantee on the cash salary of $90,000 (which at 9.5 per cent is $8,550). From 1 January 2020, the employer will be required to contribute superannuation guarantee based on the full remuneration of $100,000 p.a. (which at 9.5 per cent is $9,500 (being an increase of $950 p.a.) (in addition to the $10,000 salary sacrifice contributions).
Further, the new law also ensures that salary sacrificed superannuation does not count towards an employer’s compulsory superannuation contributions obligations.
For example: Remuneration $100,000 p.a. (excluding superannuation guarantee contributions). Employee salary sacrifices $10,000 into superannuation; therefore, $100,000 remuneration is made up of $90,000 cash salary and $10,000 benefits. Prior to 1 January 2020, the employer could effectively make no additional superannuation contributions, because the salary sacrificed contributions of $10,000 count as employer contributions. That is, the employer is treated as meeting its obligations, as 9.5 per cent of $100,000 = $9,500, and $10,000 in superannuation contributions have been made (due to the employee’s salary sacrificed amounts). From 1 January 2020, the employer will be required to contribute superannuation guarantee based on the full remuneration of $100,000 p.a. (which at 9.5 per cent is $9,500) (in this case, this is an increase of $9,500 on top of the $10,000 salary sacrifice contributions).
Please note that this new law only applies to salary sacrifice amounts that constitute superannuation contributions. It is our understanding that the new law does not apply to other salary sacrificed items.
Reference: Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019
Judy White, BDO Australia
08 November 2019