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  • Salary sacrificing super – information for employers

    An employee can 'sacrifice' part of their salary or wages into super contributions under an agreement with you. You then pay the sacrificed amount to your employee's super fund on their behalf.

    There may be benefits to both of you in that:

    • for your employee      
      • salary sacrificing is a tax effective way of increasing their super, provided they stay within their contribution caps
    • for you      
      • salary sacrificed super contributions aren't subject to fringe benefits tax
      • the contributions are tax deductible.

    To get these benefits, the contributions must be made under an 'effective salary sacrifice arrangement' to a complying super fund.

    From 1 January 2020, salary sacrificed super contributions cannot be used to reduce your super guarantee obligations, regardless of the amount your employee elects to salary sacrifice. This means for the purposes of super guarantee (SG), the salary sacrificed amount will not count towards your super guarantee obligations.

    In addition, the amount of super you are required to pay, to avoid the super guarantee charge will be 9.5% of the employee's ordinary time earnings (OTE) base. The employee's OTE base is the sum of the employee's OTE and any sacrificed OTE amounts.

    You now need to:

    • review your salary sacrifice arrangements, ensuring:
      • using your employee's OTE base to calculate your SG obligation
      • not counting salary sacrificed amounts towards the minimum amount of SG you have to pay
    • check that all of your systems correctly calculate your SG obligation in light of these changes.

    Example: Employer adjusts arrangement to ensure amounts salary sacrificed are now included in the employee's OTE base

    Sharon earns $2,000 a week and has an effective salary sacrifice agreement with her employer to sacrifice $500 to her superannuation fund each week. Sharon's salary only comprises OTE amounts.

    Sharon’s employer previously calculated his SG liability on the after salary sacrifice wage per week of $1,500 ($2,000 - $500). This amounted to contributions totalling $142.50 ($1,500 × 9.5%) to be made to Sharon’s superannuation fund to satisfy the employer’s SG liability. From 1 January 2020, Sharon’s employer must calculate the SG liability on her OTE base which includes sacrificed OTE amounts.

    To meet his SG obligation under the new law, Sharon’s employer must contribute $190 to Sharon’s super fund ($2,000 × 9.5%). This is in addition to the $500 Sharon salary sacrifices each week.

    The salary sacrificed amounts are paid to Sharon's super fund each week under the salary sacrifice arrangement. However, the employer only needs to pay the SG contributions to Sharon's super fund by the applicable quarterly due dates.

    End of example

    It is advisable that you and your employee clearly state and agree on all the terms of any salary sacrifice arrangement. You should consult the Fair Work CommissionExternal Link before proceeding.

    Salary sacrifice contributions you make for an employee must be included on their annual payment summary as reportable employer super contributions.

    You don't have to offer or agree to salary sacrifice arrangements with your employees. You may wish to speak to a tax adviser about the implications for your business.

    Note: Since 1 July 2017 the 10% maximum earnings test has been abolished from the personal superannuation contributions deductions eligibility criteria. This has meant you may have seen an increase in employees opting out of their salary sacrifice agreements. If your employees opt out, you must ensure you are paying them the required superannuation guarantee entitlements.

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      Last modified: 31 Oct 2019QC 17235