Employees, this is important for you to know…
Your employer is generally obligated to contribute the minimum 9.50% of your wages into a superannuation fund. This contribution type is referred to as a Super Guarantee (SG) contribution and is usually in addition to other contributions like a ‘salary sacrifice’ contribution. A salary sacrifice contribution stems from an arrangement between the employer and employee that allows the employee to sacrifice receiving future wages and allow this income to be paid directly into their super fund – there can be taxation benefits associated with salary sacrifice contributions but this information is not covered here. Instead, I would like to highlight another consideration that is often overlooked. Let’s use the example of an employee earning $80,000 per annum – Their employer is obligated to pay SG contributions at 9.50% of $80,000 into a superannuation fund or $7,600 per annum. Now let’s say that this same employee has done some research, has sought financial advice and has made the decision to salary sacrifice $10,000 of their wages. These funds are paid directly into the employee’s super fund, and therefore their gross wages are now $70,000 pa. The employer is still obligated to pay SG contributions at 9.50%, however because the employee’s wage is now $70,000, the employer is only obligated to pay 9.50% on the reduced wages of $70,000. This means that the employee’s SG contribution has reduced from $7,600 to $6,650 – a loss of $950.
The good news. In my my experience, most employers pay Super Guarantee (SG) contributions on the employee’s gross wages, regardless of any salary sacrifice arrangement. Importantly however, employers are not obligated to do so. Employers can simply pay SG contributions on the employees reduced wages after salary sacrifice contributions to meet their legal obligation. Accordingly, the best thing to do is firstly get some advice on your salary sacrifice strategy, but also just check-in with your employer and ask the question, “do you pay SG contributions on gross wages or on the reduced wages if I make a sacrifice contribution”. If the employer only pays SG contributions on reduced wages, don’t worry, there is more good news! there are other contribution strategies that we can can consider for you to get around the problem of losing out on your important Super Guarantee contributions. If you have any questions, please call us to discuss or visit our facebook page and send us message.
Written by Marcel Jacobs, Financial Adviser and Personal Financial Mentor of Jacobs Financial Advisory located in Ormeau on Queensland’s Northern Gold Coast.
This blog was written after working through a financial plan with a pre-retiree couple that were planning to retire in the next 5 years. A member of the couple is an employee, who is now in the process of increasing their superannuation assets through a salary sacrifice arrangement.