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How do super guarantee contributions work?

How do super guarantee contributions work?

At present, employers must make super guarantee contributions for eligible employees worth 9.5 per cent of the employees’ pre-tax wages, up to a fixed limit.  

The Superannuation Guarantee (SG), introduced in 1992, requires employers to make compulsory super contributions for certain employees.

The contribution rate used to be 3 per cent of the employee’s untaxed earnings and, over the years, it has increased to the current rate of 9.5 per cent. It’s expected to increase to 10 per cent in July 2021, and increase by 0.5 per cent every year to reach 12% in 2025. These contributions must be paid into either a super fund chosen by the employee or the employer’s default super fund every financial quarter.

To qualify for SG contributions, employees who are over 18 should be earning $450 a month before tax. For employees under 18, they need to have worked 30 hours a week and earned at least $450 to be eligible. The earnings can take the form of allowances, bonuses, commissions, shift or leave loadings, and wages, but not overtime pay. The rules around super guarantees  apply to all employees, whether employed full-time, part-time, casually or as contractors. Employers paying SG contributions for contractors will need to calculate which part of their wages paid for their labour.  

Are there any super guarantee contribution caps?

Employers are required by law to contribute at least 9.5 per cent of an eligible employee’s pre-tax wages as the super guarantee contribution. While super laws don’t stipulate an upper limit on such contributions, employers can choose to make limited super contributions for employees earning more than the maximum super contribution base (MSCB).

This MSCB, currently $57,090 per quarter, indicates that the employee earns a significantly high income, possibly sufficient to make extra super contributions independently. If you earn more than $57,090 in each financial quarter, your employer need not make a quarterly SG contribution of more than $5,423.55, which is 9.5 per cent of $57,090. The MSCB has an indexed value, based on the average weekly ordinary time earnings (AWOTE) and is updated every year in February. 

You should remember that super guarantee contributions count as concessional contributions when it comes to the tax rate applied. But this concessional tax rate is only applicable if the employee receives eligible contributions worth $25,000 or less over the financial year.

Concessional contributions include salary-sacrificed super contributions and tax-deductible personal (after-tax) contributions. They are separate from employers’ SG contributions. Suppose, an employee receives more than $25,000 in concessional contributions. In that case, they may have to pay tax at the non-concessional rate of 47 per cent.

Suppose you earn $57,090 or more every quarter. In that case, you’d probably receive $5,423.55 as quarterly SG contributions from your employer, which amounts to $21,694.20 over the year. You can then make extra concessional contributions of $3,305.80 to stay within the limit of $25,000.  

What happens if an employer makes late super guarantee contributions?

The Australian Taxation Office (ATO) expects employers to transfer both SG contributions and data at least every quarter by a specific deadline. Most employers need to ensure that the contributions have been received by their employees’ super funds by this date.

If employers fail to discharge their super obligations by the deadline, they have to pay the SG charge and lodge the SG charge statement with the ATO. These actions should be completed within a month of the SG contributions deadline. The ATO can declare employers who fail to do so non-compliant and try to collect the unpaid super contributions.

Employees are also encouraged to keep track of their super fund balance and follow up with employers if they miss making SG contributions by the deadline. They can also file a complaint with the ATO if the employer cannot explain the delay or misses further contributions.

If the ATO chooses to investigate the employer and collect the overdue SG contributions, they must provide updates in writing. Once the super contributions are collected by the ATO, they will be transferred to the employee’s super fund.     

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This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

What superannuation details do I give to my employer?

When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What will the superannuation fund do with my money?

Your money will be invested in an investment option of your choosing.

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

How much is superannuation in Australia?

Superannuation in Australia is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

How does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

What happens if my employer falls behind on my superannuation payments?

The Australian Taxation Office will investigate if your employer falls behind on your superannuation payments or doesn’t pay at all. You can report your employer with this online tool.

How do you access superannuation?

Accessing your superannuation is a simple administrative procedure – you just ask your fund to pay it. You can access your superannuation in three different ways:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

However, please note that your superannuation fund will only be able to make a payout if you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

The preservation age has six different categories:

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

There are also seven special circumstances under which you can claim your superannuation:

  • Compassionate grounds
  • Severe financial hardship
  • Temporary incapacity
  • Permanent incapacity
  • Superannuation inheritance
  • Superannuation balance under $200
  • Temporary resident departing Australia

How many superannuation funds are there?

There are more than 200 different superannuation funds.

How do you claim superannuation?

There are three different ways you can claim your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension, or income stream:

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

Am I entitled to superannuation if I'm a part-time employee?

As a part-time employee, you’re entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

When did superannuation start in Australia?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.