Removal of $450 Super Threshold

Removal of the $450 superannuation threshold

Currently, employers don’t have to pay the compulsory Super Guarantee (SG) for particular employees if their Gross Pay actually paid during a calendar month is less than $450 before tax (subject to other eligibility requirements). However, in last year’s Federal Budget, the Government announced that it would remove the $450 per month threshold to expand coverage of the SG system to eligible employees regardless of their monthly pay.

The removal of the $450 a month SG threshold is an important step towards improving the retirement savings for low-income earners, particularly women and younger Australians who work part-time, whose superannuation has been adversely affected by this threshold.  The Government said it expected the change to result in over 300,000 Australian workers receiving super contributions from now on; of which two thirds are expected to be women.  This should make the system much more equitable.

When does the removal of the $450 threshold come into effect?

The change doesn’t come in effect until 1 July 2022.  So, employers still have a few months to work out how their payroll and accounting systems need to be updated to calculate the correct super for all wages paid on or after 1 July 2022.  This may involve reviewing each employees “card” to make sure super is calculated on all wages paid and/or reviewing the payroll categories including superannuation to make sure that the <$450 option is turned off from 1 July 2022.

Please note that SG is based on when the wages are actually paid not the period of work that they relate to.  For example, wages actually paid on 1 July 2022 for the week or fortnight before that will be subject to the new rules because the wages were paid on or after 1 July 2022.

What do Business Owners need to understand about this super threshold change?

Going forward, it will also mean that employers will need to be particularly careful to get superannuation fund details from all new employees as they start to ensure that the employer can pay any necessary super on time and avoid nasty late payment penalties (caused by missing account details).  It is important for employers to remember the new Super Stapling system that was implemented to reduce the creation of duplicate accounts when workers start new jobs.  The changes ‘staple’ workers to the first super fund they join unless they explicitly choose to join another.

Business owners should also take the time now to review their budgets for next financial year to make sure they fully understand what impact this change will have on their labour costs.  Depending on the type of business and how many employees they usually have earning less than $450/month this extra cost may be significant.  Consequences could include the need to review their employee strategy (eg change rosters or types of employment structures); review overheads to see if compensating cost savings can be made elsewhere; and/or review their pricing model ie increase prices to cover the additional cost.

If you are wondering about the impact this may have on your business, give the team at Everalls Books and BAS a call now to help ensure you are ready.

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