A Senate Inquiry has been told by Industry Super Australia that some employees may not have been paid the full 9.5 per cent superannuation contribution they are entitled to.
Industry Super claims the annual retirement savings of up to 360,000 Australians could have been affected by what is describes as a legal loophole that allows employers to reduce the superannuation guarantee contributions of employees who salary sacrifice.
Employers are legally obliged to contribute 9.5 per cent of an employee’s ordinary time earnings into superannuation.
When you enter into a salary sacrifice arrangement, your ordinary time earnings are effectively reduced by the pre-tax proportion of your wage that you decide to put directly into your super.
Yet there is generally no legal obligation on your employer to continue contributing 9.5 per cent of pre-salary sacrifice wage into superannuation.
Rather, the legal obligation is for the employer to pay 9.5 per cent of your ordinary time earnings as reduced by salary sacrifice.
Many employers will maintain the employee’s compulsory superannuation contributions at the level they were before the salary sacrifice began.
But other employers cut the superannuation guarantee contribution in line with the reduced pre-tax income.
This is not necessarily the employers purposely short-changing the employee but may be a function of the accounting packages they use and what the package bases superannuation contributions on as a standard. Therefore, it is important for employees to check how much the employer is contributing to their superannuation account each quarter.
This can be done by logging into your superannuation account on your fund’s website or by calling your fund directly.
Employers must contribute to their employees’ accounts by the 28th day of the month following the end of the quarter.
This means that contributions for the December quarter must have been made by January 28.
Employees, regardless of whether they are salary sacrificing, should check the contribution in their account is at least 9.5 per cent of ordinary time earnings that quarter before any salary sacrifice.
This is usually 9.5 per cent of gross wages but may be less for those employees paid overtime and other payments not included as part of ordinary time earnings.
The table shows how much someone on pre-tax income of $75,000 could have missed out on if they decided to salary-sacrifice $15,000 and then were snared by the super loophole. If the boss kept up the compulsory superannuation of 9.5 per cent, the employee’s total after-tax salary would rise from about $65,135 to $67,760 thanks to the tax savings of salary sacrifice.
This $2625 higher figure includes the $18,800 after-tax value of the compulsory and salary-sacrifice super contributions going to our employee’s retirement nest-egg.
But if the employer deliberately or unwittingly cut our worker’s superannuation guarantee contribution from $7125 to the legally required $5700, the after-tax salary package would be about $66,548.
This would away take just under half of the employee’s $2625 net benefit of salary sacrificing. The worker’s after-tax contribution to their retirement nest-egg would fall from $18,800 to less than $17,600.
This example is based on a moderate salary and modest salary sacrifice. People earning more salary or pushing a bigger proportion of their salary into superannuation could well be hit even harder.
Losing thousands of dollars over several years can affect our retirement plans, making that quarterly check worthwhile.
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