Salary Sacrificing Super – Information for Employers

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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.

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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