Better deal on super guarantee

Posted: August 01, 2008

New rules will see that all workers get a better deal with the superannuation contributions paid by their employers.

For most employees, their employer must pay 9% of their salary or wage into super at least quarterly. If they don’t pay the contributions on time they have to pay a fine called the Superannuation Guarantee Charge. The SGC includes the unpaid contributions plus interest and will find its way to the employee’s superannuation account.

Contributions come first

If the company you work for goes bust, unpaid wages are at the top of the list to be paid before other creditors. From 1 January 2008, any unpaid superannuation guarantee contributions joined unpaid wages in receiving preferential treatment over other creditors.

What pay?

The super guarantee is paid on your salary or wage, but does this include allowances, overtime and penalty rates? Most employers use ‘ordinary times earnings’ which includes over-award payments, commissions, most allowances and paid leave but not overtime.

In the past, some employers were allowed to use different measures when determining the level of salaries and wages, but from 1 July 2008 all employers must use ordinary time earnings. Check your pay slip to see if there is a change.

The salary sacrifice trap

Salary sacrificing for most employees is one of the most tax-effective ways to get money into superannuation. Rather than paying tax at up to 46.5%, your employer pays some of your salary into superannuation where it is only taxed at 15%.

Does the employer pay the 9% superannuation guarantee on your total income or on the net salary? For instance, if your total income was $60,000 but you salary sacrificed $5,000 to super your taxable income would be $55,000.

There is nothing presently in the law to stop employers paying the superannuation guarantee on the lower amount of $55,000 but many would argue that this is hardly in the spirit of the legislation.