Super guarantee minimum threshold removed

Low-income employees should rejoice that the minimum threshold at which an employer has to pay super under the super guarantee scheme will no longer apply from 1 July 2022. Under the current scheme, all employers must spend a minimum level of super contributions on behalf of their employees, but only if each individual employee makes more than $450 per month. This is the minimum threshold.

It is estimated that around 300,000 people are affected by this minimum threshold, equating to around 3% of all employees. These generally consist of young, lower-income, or part-time workers, skewing towards female workers. Because the threshold applies on an employer level, a disproportionate amount of employees with fewer shifts at multiple jobs are also affected.

Example

Stuart is studying at university part-time and working part-time with 3 different employers (a café, a clothing retailer, and a bookseller). Over the course of a month, Stuart makes $400 before tax with each employer. Even though he had made $1,200 before tax at the end of the month, because his earnings with each employer were below the $450 threshold, no super guarantee amounts would have been made on his behalf to his employer's super fund.

While the original rationale for the minimum threshold was to reduce the administrative burden on employers having to deal with and pay a small amount of super guarantee, the digitization of payroll systems has made the original rationale redundant. Coupled with measures that prevent the erosion of low-balance accounts – such as capped administration and investment fees and insurance charges for inactive accounts – low-income earners, those working part-time and other workers currently under the threshold will have a chance to build their super for retirement.

Practically, what this change means for employers is that, from 1 July 2022, regardless of what each individual employee makes each month, that amount of before-tax salary and wages will be used as a basis to calculate the amount of super guarantee that the employer is obliged to pay on a quarterly basis. The super guarantee percentage will be 10.5% for the 2022-23 income year (ie 1 July 2022 to 30 June 2023) when the minimum threshold is removed.

In the example of university student Stuart, if he continues to make the same amount (ie $400 per month with each employer on an ongoing basis), from 1 July 2022, each of his employers will be required to contribute $42 per month to his super ($400 x 10.5%). If they pay super guarantee on a quarterly basis, Stuart should be getting $378 each quarter in total from all his employers. Over the course of a year, $1,512 in super guarantee contributions will be made to his super fund which he would not have received before the minimum threshold removal.