Salary Sacrifice

Salary Sacrifice and Super Guarantee (SG) Law

Written by: Institute of Certified Bookkeepers

Salary Sacrificing Super

An employee may agree to sacrifice part of their salary or wages to their superannuation fund from their gross earnings. It’s important for the employee to review and understand the thresholds to ensure the total of salary sacrifice and super guarantee do not exceed the threshold.

Benefits

  • not considered a fringe benefit
  • reduces employee’s taxable income
  • super contributions taxed at concessional rate within the fund
  • tax deductible for the business where the employee is under 75 years old

Salary sacrifice payments are considered to be an employer contribution and therefore can be submitted quarterly. The ATO has removed any references to payment dates other than the required quarterly payments as per SGC law. The ATO used to ‘recommend’ that post-tax contributions should be paid monthly, however this is no longer mentioned on their website. The timing of this payment is governed by an agreement between the employer and employee, otherwise the quarterly contribution remains.

Changes from 1st January 2020

From 1st 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 the salary sacrificed amount does not count towards your super guarantee (SG) obligations.

A further change is that the super guarantee will be 9.5% of the employee’s ordinary time earnings (OTE) ‘base’. The base is the sum of:

  • the employee’s OTE
  • the amount salary sacrificed from the employee’s OTE

You need to review your salary sacrifice arrangements to make sure you are:

  • using your employee’s OTE base to calculate your SG obligation
  • not counting salary sacrificed amounts towards the minimum amount of SG you are required to pay
  • checking that all your systems correctly calculate your SG obligation

Example Scenario

Discussing with a new employee, negotiating salary package including salary sacrifice options on offer and in the spirit of the law with the desired SGC outcome:

“We are prepared to offer you the position with a total package of $100k plus superannuation, being a total package of $109,500. We are prepared to package up this offer provided a minimum of $9,500 superannuation is paid.”

Employee Options

The employee could arrange for a salary sacrifice component for a car of $20k, and then the package would be $80k wage, $20k car and $9,500 super.

If the employee just wanted to package up so there was a total of $15k super, then the package could be $94,500 wage and $15k super made up by $9,500 SG and $5,500 RESC, so even though the SG at 9.5% of $94,500 would only be $8,977.50, the new law requires the original amount of OTE (Ordinary Time Earnings – being the $100k) to be used as the basis for the SG obligation.

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