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As employees, most of us see the regular note on our payment summary listing the amount for our employer’s Superannuation Guarantee (SG) contribution into our super account and rarely give it much thought.
To help you understand it a little better, here’s SuperGuide’s simple explanation of the SG and what it means for your retirement savings.
So just what is the Superannuation Guarantee?
The most common type of contribution regularly going into your super account is likely to be the Superannuation Guarantee – or SG for short – which is the contribution your employer (whether large or small) is required to make into a super fund on your behalf.
The SG is part of the remuneration you receive from your employer. The amount is a percentage of your salary or wages, with the percentage set by the Australian Government and changing over time.
The current rate for SG payments by your employer is 9.5%, with this rate currently set to continue until 1 July 2021, when it will increase to 10%.
Note: The SG rate was originally set to increase to 10% in July 2015, but the government legislated to slow the gradual increases in the rate, delaying the increase to this amount by 7 years until July 2021.
Good to know
Although the SG rate is legislated to increase to 10% from 1 July 2021, in the wake of the COVID-19 crisis, there is considerable lobbying going on within the Morrison Government to delay this increase yet again.
Superannuation Guarantee rate (2002 to 2026)
| Period | Super guarantee rate |
|---|---|
| 1 July 2002 – 30 June 2013 | 9.00% |
| 1 July 2013 – 30 June 2014 | 9.25% |
| 1 July 2014 – 30 June 2015 | 9.50% |
| 1 July 2015 – 30 June 2016 | 9.50% |
| 1 July 2016 – 30 June 2017 | 9.50% |
| 1 July 2017 – 30 June 2018 | 9.50% |
| 1 July 2018 – 30 June 2019 | 9.50% |
| 1 July 2019 – 30 June 2020 | 9.50% |
| 1 July 2020 – 30 June 2021 | 9.50% |
| 1 July 2021 – 30 June 2022 | 10.00% |
| 1 July 2022 – 30 June 2023 | 10.50% |
| 1 July 2023 – 30 June 2024 | 11.00% |
| 1 July 2024 – 30 June 2025 | 11.50% |
| 1 July 2025 – 30 June 2026 and onwards | 12.00% |
Source: ATO
If your employer doesn’t pay the required rate of SG into your super account by the quarterly due date, they may have to pay a Superannuation Guarantee Charge (SGC) to the ATO. The SGC includes all the SG amounts owing to an employee, plus interest and an administration fee.
Employers who don’t pay the SG into the correct super fund by the due date must report and rectify the missed payment by lodging an SG Statement and paying the SGC.
Am I eligible for SG contributions?
If your employer is paying you $450 or more (before tax) in a calendar month, you must receive super contributions in addition to your wages. Employees aged under 18 or those classified as a private or domestic worker (like a nanny) must work for more than 30 hours per week to qualify for SG payments.
Need to know
You are eligible for SG payments whether you are a full-time, part-time or casual employee.
Employees who are a company director, a family member working in a business, or someone receiving super pension or annuity or transition-to-retirement payments are also eligible for SG payments.
Temporary residents are also entitled to receive SG payments into their super account.
If you want to check whether you are entitled to SG contributions from your employer, you can use the ATO’s Am I entitled to super? online tool. It asks questions about your working arrangement to help you determine whether or not you are entitled to super from your employer.
Contractors and the SG
If you are working as a contractor you may be eligible for SG payments, even if you hold an Australian Business Number (ABN). Contractors who have a contract that is mainly for their personal labour and skill rather than for a result, and who must perform the contracted work personally, should be paid the SG.
In situations where the employer contracts a company, trust or partnership rather than a particular person to provide the labour, the contractor is generally not eligible for SG payments.
You can check the ATO’s Super Guarantee Eligibility Decision Tool to work out if your employer should be paying SG contributions for you. If you are ineligible, you can make your own contributions into your super account.
How is my SG contribution calculated?
Your SG contribution is currently 9.5% of your ordinary times earnings (OTE) and is paid on top of your wages or salary.
Your OTE is usually the amount you earn for your ordinary hours of work and includes commissions, shift loadings and allowances, bonuses and any over-award payments. It does not include any overtime payments. For more detailed information about what payments are included in OTE, see the ATO’s website.
Awards and agreements
| Payment type | Salary or wages | Ordinary time earnings (OTE) |
|---|---|---|
| Overtime hours: Award stipulates ordinary hours to be worked and employee works additional hours for which they are paid overtime rates | Yes | No |
| Overtime hours: Agreement prevails over award | Yes | No |
| Agreement supplanting award removes distinction between ordinary hours and other hours | Yes: All hours worked | Yes: All hours worked |
| No ordinary hours of work stipulated | Yes: All hours worked | Yes: All hours worked |
| Casual employee: Shift loadings | Yes | Yes |
| Casual employee: Overtime payments | Yes | No |
| Casual employee whose hours are paid at overtime rates due to a ‘bandwidth’ clause | Yes | No |
| Piece-rates: No ordinary hours of work stipulated | Yes | Yes |
| Overtime component of earnings based on hourly-driving-rate method stipulated in award | Yes | No |
Source: ATO checklist of salary/wages and OTE
To check you are being paid the right amount of SG, the ATO also has an online tool you can use. You simply enter the time period you want to check plus your OTE for each quarter in that period. The tool then calculates how much super your employer should have paid into your super account.
For employees with non-standard employment arrangements, this area can be quite complex, so it can be worth checking with the ATO on 13 10 20 or using the ATO’s information checklist if you think your employer is not paying the right amount of SG based on various wage or salary payments you receive.
Case study
Eric is employed at an IT service desk and his contract requires him to work a minimum number of hours a week. By agreement with his employer, he often works additional shifts if it’s mutually convenient, although there is no consistency or pattern to when this happens.
Eric’s employment is not governed by an award or agreement specifying his ordinary hours of work. Any extra shifts he works are not paid overtime penalties or extra payments.
As Eric’s wage payments are a reward for services provided as an employee, they are classed as salary or wages. Since there are no stipulated ordinary hours of work for Eric’s employment and no obvious pattern of regular or usual hours, all the hours he works are classed as ordinary hours of work and all his wages are OTE.
Source: Adapted from the ATO website
Is there a limit on the SG contribution I can receive?
The current SG contribution rate is 9.5% of your earnings up to a limit called the maximum super contribution base (MSCB). If you earn above that amount in a particular quarter, your employer does not have to make SG contributions for the part of your earnings over the limit.
The MSCB for 2020/21 is $57,090 per quarter, which equals a maximum SG contribution of $5,423.55 per quarter. Learn more about how the maximum super contribution base works.
What happens if I have several jobs?
From 1 January 2020, if you have multiple employers you can apply to opt out of receiving SG contributions from some of your employers so you don’t unintentionally go over your concessional (before-tax) contributions cap.
To be eligible to opt out, you must have more than one employer and expect the total of all your employers’ concessional contributions to exceed your concessional cap for the financial year.
Employees in this situation can submit a Super guarantee opt out for high income earners with multiple employers form to the ATO. You then receive an SG employer shortfall exemption certificate to give to one or more of your employers to release them from their SG obligation.
Your employer can’t apply for an exemption on your behalf and you must receive SG contributions from at least one of your employers each quarter. It’s important to note your application must be lodged at least 60 days before the start of the next quarter.
Need to know
Even if you provide some of your employers with an SG employer shortfall exemption certificate that releases them from their SG obligations for up to four quarters in one financial year, they can choose to disregard the exemption certificate and continue making SG contributions on your behalf.
Applying for an exemption may not be beneficial for you as it may affect your pay and other entitlements, so ensure you talk to an accountant or tax agent before lodging the release form.
How are SG contributions taxed?
SG contributions going into your super account receive a ‘concessional’ tax treatment – which means they are contributions from money that has not been taxed – so they are before-tax. That’s why SG contributions are classed as concessional (before-tax) contributions.
Once SG contributions enter your super account they are taxed at the special low rate of 15% (if your income is up to $250,000) or 30% (if your income is over $250,000). For many people this tax rate is lower than the marginal tax rate they pay on their income.
Watch your annual contributions limit
As there are tax benefits to holding retirement savings in your super account, the government imposes strict annual caps on concessional (before-tax) contributions like SG contributions.
From 1 July 2017, the concessional contributions cap is indexed in line with average weekly ordinary time earnings (AWOTE) in increments of $2,500 (rounded down). The annual concessional contributions cap for 2020/21 is $25,000, regardless of your age.
If you go over your cap amount, you will have to pay extra tax. The cap applies to the total of all your super accounts across different super funds.
Good to know
If you have a total superannuation balance of less than $500,000 on 30 June of the previous financial year, you can use any unused amount of your cap for up to five years to make a carry-forward contribution.
For more information, read SuperGuide article Carry-forward contributions: How to use your unused contribution caps to boost your super.
When monitoring your concessional contributions like the SG for the financial year, remember super contributions are not counted when the payment is sent by your employer, they only count once the payment is received by your super fund.
If you have a salary-sacrifice arrangement with your employer, ensure your super fund receives all the salary sacrifice contributions from your employer by 30 June or the contributions will be counted towards your concessional contributions cap for the following financial year. For more information, see SuperGuide article Salary sacrifice and super: How does it work?.
Need to know
From 1 January 2020, your salary-sacrificed super contributions can’t be used by your employers to reduce their SG payment obligations, regardless of the amount you elect to salary sacrifice.
This means your salary-sacrificed amounts don’t count towards your employers’ SG payment obligations.
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