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?
- 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 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 this 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 current proposed changes to SG rates 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, 2020
These rates may change given the COVID-19 pandemic and Australian recession. At the time of writing, the final report from the Retirement Income Review (which looks at the current state of the superannuation system including the SG rate) was not yet available, but the Australian Government had released its Your Future, Your Super reforms in the Federal Budget 2020 which showed no change to the schedule above.
Who is eligible for Super Guarantee contributions?
As an employee, if you’re paid $450 or more (pre-tax) each month, super contributions must be made by your employer regardless of whether you’re full-time, part-time or casual.
If you’re under 18 or a domestic or private worker (such as a nanny or housekeeper), you must work more than 30 hours per week to be eligible for SG payments.
Employers pay super for some contractors, even if they quote an Australian business number (ABN). Temporary residents, such as those on visas, are also eligible for SG payments.
The ATO has a handy online tool that can help you figure out whether you’re entitled to SG contributions or not.
How do you calculate Super Guarantee contributions?
The SG contribution is calculated based on the current percentage against what’s known as your ordinary time earnings (OTE). This must be paid on top of your earnings.
Ordinary time earnings refers to the amount you’re paid for ordinary hours of work (pre-tax), which may include shift loading, 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 a 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’re required 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’ 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.
If you believe your employer is not paying your super, 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.
→Related article: 6 questions to ask when planning for retirement
Are contractors and self-employed business owners eligible for the Super Guarantee?
There are laws related to contractors who need to be paid 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.
Contractors that are paid mainly for their labour are considered employees for super guarantee purposes. This involves the following provisions:
- 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 mustn’t delegate it
The ATO offers a handy employee/contractor decision tool that allows you to check whether you should treat the worker as an employee or contractor.
For superannuation guarantee purposes, you can use its superannuation guarantee eligibility decision tool to help deduce whether SG contributions must be paid for the contractor.
For self-employed businesses such as sole traders and partnerships, 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 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 to 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.
Are Super Guarantee contributions taxed?
Super Guarantee contributions are 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 pre-tax contributions. If you contribute more than the cap, you may need to pay extra tax. The cap is currently $25,000.
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 incomes. However, if you are likely to exceed the concessional contributions cap of $25,000, 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 received, the ATO 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, Australian Treasurer Josh Frydenberg announced the Your Future, Your Super package 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 and are earning over $450 a week, it’s likely you are eligible for the SG payment from your employer. It is important to ensure you’re keeping an eye on your superannuation balance to ensure that your employer is making the correct contributions on your behalf.
For business owners who are sole traders or contractors, there are specific conditions that need to be met that determine whether employers 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 unsure of your personal superannuation contributions, whether you are self-employed or working for an employer, it is a good idea to visit the ATO’s website or consult a tax agent or accountant who can help you decide 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.
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.
Thanks for visiting Canstar, Australia’s biggest financial comparison site*
Cover image source: Atstock Productions (Shutterstock)