Superannuation is a crucial part of an employee’s benefits package and is heavily regulated, so when changes are proposed to superannuation legislation, employers need to be fully educated and prepared. In 2012, the Federal Government announced a potential increase in employers’ obligatory super contributions, with  this legislation set come into effect on July 1st of this year. This is just one part of the “Stronger Super” reform and whilst it may be daunting for employers, July is fast approaching and businesses need to plan ahead to avoid potential problems.

•          From July 2013, the minimum contribution is set to increase from 9% to 9.25%
•          From July 2014, this is set to increase to 9.5%
•          From July 2015, it is set to increase annually by 0.5% until July 2019 when it reaches 12%

The impact of these changes can be huge for businesses and yet, according to a survey by Aon Hewitt, many employers have not yet fully considered the effect it will have and have also not prepared themselves to avoid fines for non-compliance.

Aon Hewitt questioned 160 Australian companies about superannuation, which produced these interesting results:

•          58% have no plan in place beyond the end of the year
•          11% intend to contribute more than the minimum, compared to 29% who do so at the moment.
•          12% plan to conduct a review to decide which MySuper fund to contribute to

What to do now?

Employers are required to increase contributions for eligible employees from 9% to 9.25% from July 1st and also comply with the further increases each year. (Subject to legislation passing next month).

Can an employee’s salary or hourly rate be reduced to offset the cost to the business?

Generally, no.

For employees paid by the hour, the Federal Government has indicated that future minimum wage increases would take into account the increased compulsory contributions.

For salaried employees, it is dependent on the employee’s contract, award or agreement and the way in which remuneration is dealt with specifically in all employment related documentation. If it is set out that superannuation will be paid in accordance to relevant legislation, businesses can face legal issues if they try to reduce pay in light of the increased contribution rate. This becomes a little more contentious if there is a clear clause in the contract of employment which indicates that increases to compulsory contributions will be offset by a reduction in pay, or if there is no reference to the specific percentage of superannuation in relation to salary packages.

Are there other ways to offset the cost?

Businesses should seek legal advice before taking any action concerning the reduction of base salaries or hourly rates.