Changes to Salary Sacrificing to Super
There’s been an important change to employee super guarantee calculations. The change relates to employers who pay salary sacrificed amounts into an employee’s superfund. The following information is therefore an update for employers. Please contact us if you would like to chat.
Salary Sacrificing - What is it?
Salary sacrificing to super is when an employee ‘sacrifices’ part of their salary or wages into super contributions under an agreement with an employer. The employer then pays the sacrificed amount to the employee’s super fund on their behalf.
The benefits of salary sacrificing for the employee:
Salary sacrificing is a tax effective way of increasing their super, provided they stay within their contribution caps
Benefits for employers:
Salary sacrificed super contributions are not subject to fringe benefits tax,
The sacrificed contributions are tax deductible.
To get these benefits, the contributions must be made under an “effective salary sacrifice arrangement” to a complying super fund.
What is changing?
Currently, you can choose to reduce the 9.5% super guarantee contribution obligation by the salary sacrificed super amount, which reduces the amount of super guarantee you need to pay.
However, from 1 January 2020 salary sacrificed super contributions cannot be used to reduce your super guarantee obligations, regardless of the amount your employee elects to salary sacrifice. This means for the purposes of super guarantee, the salary sacrificed amount will not count towards your super guarantee obligations.
The amount of super you are required to pay will be 9.5% of the employee’s ordinary time earnings (OTE) base. The employee’s OTE base is the total of the employee’s OTE and any sacrificed OTE amounts.
When will this happen?
This will come into effect from 1st January 2020.
Who does it affect?
An employer with a salary sacrifice arrangement with an employee.
You should know:
You don’t have to offer or agree to salary sacrifice arrangements with your employees. You may wish to speak to a tax adviser about the implications for your business.
What you need to do:
Review your salary sacrifice arrangements, ensuring that from 1 January 2020:
You are using your employee’s OTE base to calculate your SG obligation
You are not counting salary sacrificed amounts towards the minimum amount of SG you have to pay
Check that your payroll software correctly calculates your Super Guarantee obligation in light of these changes.
Contact your Accountant for assistance.
It is advisable that you and your employee clearly state and agree on all the terms of any salary sacrifice arrangement. You should consult an HR expert, Lawyer or Fair Works before entering into an agreement with your employee.
You can find more information on the ATO’s website, but feel free to contact us if you have any questions at all.