The minimum amount your employer is required to contribute to your superannuation is based on rules and legislation, and is known as the Superannuation Guarantee.
- What is the Superannuation Guarantee?
- Will the Super Guarantee rate increase this year?
- Who is eligible for Super Guarantee contributions?
- How do you calculate Super Guarantee contributions?
- What if my employer doesn’t pay my super on time?
- Are contractors and self-employed business owners eligible for the Super Guarantee?
- What are the Super Guarantee contribution limits?
- Are Super Guarantee contributions taxed?
- How does the Super Guarantee work if I have more than one job?
What is the Superannuation Guarantee?
The Superannuation Guarantee, commonly known as the Super Guarantee or SG for short, is the contribution that’s regularly made into your super fund by your employer to help bolster retirement savings and supplement the Age Pension. Currently, it is set at 9.5% of your base salary.
This contribution is tied in with your salary or remuneration package and is paid on top of your salary, with compliance governed by the Superannuation Guarantee (Administration) Act 1992 (Cth).
The minimum percentage employers are required to pay is set to increase over time, with the next increase to 10% due on 1 July, 2021. Here are the past and present SG rates, as well as the currently legislated future changes to the rate from the Australian Government:
|Financial Year||Super Guarantee Rate|
|1 July 2002 – 30 June 2013||9%|
|1 July 2013 – 30 June 2014||9.25%|
|1 July 2014 – 30 June 2021||9.5%|
|1 July 2021 – 30 June 2022||10%|
|1 July 2022 – 30 June 2023||10.5%|
|1 July 2023 – 30 June 2024||11%|
|1 July 2024 – 30 June 2025||11.5%|
|1 July 2025 – 30 June 2026 and onwards||12%|
Source: Australian Taxation Office, 2021
Will the Super Guarantee rate increase this year?
The 2021 Federal Budget stipulated the Government intends for the scheduled increase of the super guarantee rate from 9.5% to 10% to still take place on 1 July, 2021.
All other things being equal, an increase to the SG rate generally means greater savings at retirement, as Canstar has calculated previously.
Some of the findings from the Federal Government’s Retirement Income Review, released in November last year, called into question the scheduled SG increase to 10% in July and eventually 12% by 2025. The report favoured accessing equity in the home as a way to “significantly boost” retirement incomes, and suggested “more efficient” use of retirement savings could be a better way to improve retirement incomes than increasing the super guarantee. It also argued that the majority of increases in the SG come at the expense of pay rises.
The SG rate has been frozen at 9.5% since 2014, despite having originally been scheduled to hit 10% in July 2015 and reach the 12% mark by 1 July 2019. Some Government representatives have argued a higher SG rate could see workers miss out on pay rises, while other commentators, including members of the Opposition, have argued wages have been almost stagnant anyway during the six-year SG freeze, and that this has been exacerbated by workers also missing out on thousands of dollars in missed boosts to employer super contributions during that time.
Who is eligible for Super Guarantee contributions?
As an employee, if you’re paid $450 or more (pre-tax) each month, your employer generally has to pay you SG contributions, regardless of whether you’re full-time, part-time or casual. However, this $450 threshold is set to be scrapped by 1 July, 2022, following the release of the Federal Government’s 2021 Budget. This means that after this date, even if you are not earning $450 or more a month, you could still be eligible to receive superannuation from your employer.
If you’re under 18 or a domestic or private worker (such as a nanny or housekeeper), you must also work more than 30 hours per week to be eligible for SG payments.
Employers must pay super to some contractors as well, even if they quote an Australian Business Number (ABN). Temporary residents, such as those on visas, are also typically eligible for SG payments.
The ATO has an online tool that can help you figure out whether you’re entitled to SG contributions or not.
How much super should I be paid?
The SG contribution is calculated based on a legislated percentage (9.5% at the time of writing) of what’s known as your ordinary time earnings (OTE). This must be paid at least quarterly, on top of your salary or wages.
Ordinary time earnings refers to the amount you’re paid for ordinary hours of work (pre-tax), which may include shift loadings, allowances, bonuses and commissions. However, it doesn’t include overtime payments. For example, if your OTE is $50,000 per year, your employer would be required to pay $4,750 into your super fund (9.5% of $50,000).
The Australian Taxation Office (ATO) has an OTE checklist that shows classifications between salary or wages and ordinary time earnings. You can calculate your super guarantee contributions using the ATO’s calculator.
What if my employer doesn’t pay my super on time?
Employers are obligated to pay employees’ super contributions quarterly, at a minimum. If they fail to do this, they’ll have to pay what’s known as a Superannuation Guarantee Charge (SGC) to the ATO.
The SGC includes the owed SG payment, as well as interest (currently 10%) and an administration fee of $20 per employee, per quarter, for missing the payment. Any ‘choice liability penalty’ that is owed, which is a penalty for not giving eligible employees the right to choose their own super fund, is also applied. The SGC is not tax-deductible, the ATO states.
If you believe your employer is not paying your super guarantee, it is a good idea to contact them directly. If they do not correct their error or pay the correct amount, you can report unpaid super contributions to the ATO.
Are contractors and self-employed business owners eligible for the Super Guarantee?
The law provides that contractors may need to be paid the SG if the service they provide is based on time, rather than an outcome. In addition, the work needs to be carried out by the contractor personally rather than by another company, trust or partnership.
According to the ATO, contractors who are paid mainly for their labour may be considered employees for super guarantee purposes, provided that:
- They’re paid under a verbal or written contract that is predominantly for their labour (more than half the dollar value of the contract is for labour)
- They’re paid for their personal labour and skills such as physical labour, artistry or mental effort
- They perform the work personally and don’t delegate it.
The ATO offers a handy employee/contractor decision tool designed to help you decide whether you should treat a particular worker as an employee or contractor more generally.
For superannuation guarantee purposes, you can use its superannuation guarantee eligibility decision tool to help deduce whether you will need to pay SG contributions for the contractor.
If you run a self-employed business as a sole trader or in a partnership, the ATO says you generally aren’t required to make SG payments for yourself. However, you may want to make personal contributions to super as a way to help fund your retirement.
What are the Super Guarantee contribution limits?
There is a cap to how much superannuation employers are required to pay, known as the maximum super contribution base (MSCB). The MSCB is indexed in line with average weekly ordinary time earnings, and changes each financial year. If you earn above the MSCB in a quarter, your employer isn’t obligated to make SG contributions for anything you earn above the limit.
For the 2020–21 financial year, this cap is $57,090 per quarter ($228,360 per year), meaning that employers aren’t required to contribute more than $5,423.55 per quarter to a single employee’s super account.
Are Super Guarantee contributions taxed?
Super Guarantee contributions are normally taxed at a concessional contribution rate of 15%. You can also choose to make pre- or post-tax contributions to your super. Keep in mind that there are caps each financial year for these contributions. If you contribute more than the cap, you may need to pay extra tax. The annual cap for concessional (pre-tax) contributions is currently $25,000 but will increase to $27,500 from 1 July 2021.
The ATO also states that if your total income and pre-tax super contributions (including SG payments) for a financial year exceed $250,000, you may have to pay an extra 15% ‘Division 293 tax‘ on the excess.
How does the Super Guarantee work if I have more than one job?
If you have multiple jobs and earn above the required minimum SG eligibility amount for each, you are entitled to have your super paid on all of them. However, if you are likely to exceed the concessional contributions cap of $25,000 per financial year ($27,500 from 1 July 2021), you can decide to opt-out of having one or more employers making SG contributions.
You must also maintain at least one employer who will make SG contributions for you each quarter.
To opt out of receiving superannuation from an employer, you will need to submit a form to the ATO. Once the ATO has received this form, it will issue an SG employer shortfall exemption certificate that can be given to employers so that they’re released from their SG obligations.
In the 2020 federal budget, Mr Frydenberg announced the Your Future, Your Super package of reforms, with changes including allowing employees to take their super fund with them when changing jobs.
For the majority of people who have a job, it’s likely you are eligible for SG payments from your employer. It is important to keep an eye on your superannuation balance, to ensure that your employer is making the correct contributions on your behalf.
For sole traders or contractors, there are specific conditions that need to be met that determine whether any employers you do paid work for are required to contribute SG payments on your behalf. If you do not meet these criteria, you can always choose to contribute to your own superannuation. If you are self-employed as a sole trader or in a partnership, you may not be required to contribute to your own super, but again, it could still be worth considering making voluntary contributions if you want to grow your retirement nest egg.
If you are unsure of your personal superannuation contributions, whether you are self-employed or working for an employer, it could be a good idea to visit the ATO’s website or consult a tax agent or accountant who can help you decide what the best strategy is for your situation.
If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.
Cover image source: Atstock Productions/Shutterstock.com
About Davie Mach
Davie Mach is a Chartered Accountant and Director of Box Advisory Services, a boutique accounting firm focused on assisting small businesses and contractors in taxation, business advisory and accounting. Davie has over 15 years’ experience in finance and a Bachelor of Commerce, Accounting and Taxation from the University of New South Wales. You can find him on LinkedIn.