Superannuation plays a vital role in the retirement strategy of most individuals. However, if you don’t understand the technical details related to the salary benefits and compensation packages, you might end up getting quite a low contribution from your employer. One of the complexities that you might be confused about is the Maximum Super Contribution Base, also known as the MSCB, as the terms and limits tend to change annually.
It is mandatory for employers to pay a certain amount into their employee’s chosen superannuation fund quarterly in Australia. The amount that the employer is legally required to pay each employee is known as the Superannuation Guarantee. This amount is currently calculated at 9.5 per cent of an employee’s regular earnings up to the maximum contribution base for superannuation.
What is the maximum contribution base?
The maximum contribution base is used to identify the most an employer is legally required to pay as part of the super guarantee in a particular fiscal quarter. Legally, the employer doesn’t need to pay any further super contributions for income over the MSCB level, though there is no prohibition against doing so. The MSCB level changes periodically and is indexed in line with the Average Weekly Ordinary Time Earnings, usually determined in February.
How does the maximum contribution base work?
To understand how the superannuation maximum contributions base works, let’s say, for example, that you’re a high income earner on $260,000 a year in the 2017-18 financial year. This would mean you'd earn $65,000 per quarter.
You’d expect that your employer would have to pay 9.5 per cent of these earnings into your super fund as part of the superannuation guarantee. However, because the maximum contribution base for 2017-18 is $52,760 per quarter, your employer would only be legally required to pay 9.5 per cent of $52,760 each quarter.
Employers can still choose to offer a salary package with super benefits, including the employer paying a higher contribution for high earners. Nevertheless, employers need to ensure that every employee gets at least 9.5 per cent of their income up to the maximum contribution base for superannuation. Hence, it’s imperative to know the maximum contribution base for any particular year.
Maximum contribution base limits for current and previous years:
Income per quarter
Source: Australian Taxation Office
What if the employer doesn’t meet the maximum contribution base?
Suppose an employer fails to meet obligations towards an employee’s super contributions, like not paying 9.5 per cent on the maximum contribution base for superannuation. In that case, they may be liable for a penalty or liability. Moreover, if the employer doesn’t disclose their Tax File Number information to an employee-nominated super fund, they might have to pay a penalty of $1,100 per employee.
What can an employee do if the maximum contribution base isn’t met?
If an employee is concerned about insufficient SG payments made by their employer, their first course of action should be to check the actual contributions made to their super fund. If the concerns persist, they can approach their employer for information about the contributions made. If this doesn’t resolve the issue, the final step would be contacting the ATO to report unpaid SG. To do this, the employee would need to provide the following information to the ATO:
- Employee’s tax file number
- Period for which details are required
- Employer’s details, including ABN