Effective from 1 January 2020, the Superannuation Guarantee (Administration) Act 1992 will no longer allow salary sacrifice super amounts to reduce an employee's OTE or offset super contributions that employers are required to pay. As such, any business that currently has their salary sacrifice super deduction set up to reflect this will need to update their deduction setting accordingly.
Specifically, there are 2 changes:
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Salary sacrificed super contributions will no longer reduce the ordinary time earnings an employer is required to calculate an employee's SG liability on. This will affect you if you have chosen the option "Reduces ordinary time earnings (OTE)" from the Impact on SG Calculations dropdown. From a financial perspective, the impact from the new year will be as follows (using the current SG rate of 10%):
Existing impact Impact from 1 January 2020 Contribution difference OTE base $1,000 $1,000 Salary sacrifice deduction $300 $300 Reduced OTE base $700 $1,000 Total super contribution $70 $100 $30
You will notice that the 'Reduced OTE base' from 1 January will be no different to the employee's OTE Base amount. This is ultimately what this change is about. As you can see, the impact of this change means that the employer will need to pay super contributions on the employee's OTE Base, regardless of whether the employee salary sacrifices a super amount or not. -
Salary sacrificed super contributions will no longer count towards the amount of SG contributions an employer is required to make for them to avoid the super guarantee charge. This will affect you if you have chosen the option "Reduces OTE and offsets SG contribution (if allocated to super fund)" from the Impact on SG Calculations dropdown. From a financial perspective, the impact from the new year will be as follows:
Existing impact Impact from 1 January 2020 Contribution difference OTE base $1,000 $1,000 Salary sacrifice deduction $300 $300 Reduced OTE base $700 $1,000 Total super contribution $70 $100 Amount required to send to super fund $300 $400 $100
Currently, if the legislated super contribution (calculated off the reduced OTE base) is less than the amount being salary sacrificed, the employer only has to transmit the salary sacrificed amount to the super fund. In the above example, you'll see the SG contribution is $70 however as $300 is being salary sacrificed (a higher amount) only that amount will be processed. From next year however, the employer can no longer use the $300 salary sacrifice to meet their SG obligations of $100. As such, the employer will need to send the salary sacrifice amount and the SG contribution amount ($400) to the super fund.
How do I update my deduction settings to comply with the change?
To clarify, the legislation changes take effect from 1 January 2020. If you want to change your settings now, you can. To do this, go to the applicable deduction category (Payroll Settings > Deduction Categories) and undertake an analysis of all your pre-tax deduction settings. You can easily determine these as it will state in on the Deduction Categories screen:
Click on the deduction category name to expand the details. If the Impact on SG Calculations setting is using either the "Reduces ordinary time earnings (OTE)" or "Reduces OTE and offsets SG contribution (if allocated to super fund)" option you must change this to "No impact".
What happens if I don't update my deduction settings before 1 January 2020?
For any business that is using the "Reduces OTE and offsets SG contribution (if allocated to super fund)" option, the system will automatically change this to "No impact" from 1 January. This is because we will be removing this option altogether from the Impact on SG Calculations setting. Any business using the "Reduces ordinary time earnings (OTE)" option for any Super based deductions are responsible themselves for changing to the correct "No impact" setting. We will not do this automatically as not all deductions set up in your business will relate to salary sacrifice super. To ensure you constantly remain compliant, make sure to change the settings for all affected salary sacrifice super deductions set up in your business before 1 January.