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Businesses Must Prepare for the Superannuation Guarantee Rate Increase

· 4 min read
Myaccountant Team

The superannuation guarantee (SG) rate is on a legislated path to 12 per cent. For Australian businesses, each incremental increase affects payroll costs, cash flow, and compliance obligations. Preparing for these changes — rather than reacting to them — is essential.

The Rate Schedule​

The SG rate has been increasing by 0.5 percentage points each financial year as part of the government's long-term plan to boost retirement savings for Australian workers. The key milestones are:

  • 1 July 2024: 11.5 per cent
  • 1 July 2025: 12 per cent (the legislated ceiling)

From 1 July 2025 onward, the SG rate will be 12 per cent of an employee's ordinary time earnings. While the increases may seem modest in percentage terms, the cumulative impact on payroll costs is significant — particularly for labour-intensive businesses.

The Budget Impact​

Consider a business with an annual wages bill of $1 million. The difference between an 11 per cent SG rate and 12 per cent represents an additional $10,000 per year in super contributions. For a business with $5 million in wages, the increase is $50,000.

These are real costs that need to be factored into budgets, pricing decisions, and financial forecasts. Businesses that absorb the increases without adjusting their financial planning risk margin erosion.

Who Pays the Increase?​

A common question is whether the SG increase should come out of the employer's pocket or be absorbed from existing wage packages. The answer depends on the terms of the employment contract.

For employees on a "total remuneration" or "salary inclusive of super" package, the SG increase may not represent an additional cost to the employer — the gross salary remains the same, but a larger portion is directed to super. However, employees on these packages effectively receive a take-home pay cut when the SG rate rises, which can create retention and morale issues.

For employees on a "base salary plus super" arrangement — which is the more common structure — the SG increase is an additional cost to the employer. The employee's take-home pay is unaffected, and the employer bears the full cost of the higher contribution.

Reviewing employment contracts and clarifying the position for each employee is an important step in planning for the increase.

Payroll System Updates​

Your payroll system needs to apply the correct SG rate from the first pay run on or after 1 July each year. Most modern payroll platforms update automatically, but it is critical to verify this before the first post-change pay run.

Key checks include confirming the SG rate has been updated in your payroll settings, reviewing any salary packaging or total remuneration calculations that are affected, and ensuring your system correctly handles the transition for pay periods that span the rate change date.

Compliance Obligations​

The ATO has no tolerance for employers who continue to apply the old SG rate after a legislated increase. Underpayment of super — even by 0.5 per cent — triggers the Superannuation Guarantee Charge (SGC), which includes the shortfall amount calculated on total salary and wages (not just ordinary time earnings), nominal interest at 10 per cent per annum, and a $20 administration fee per employee per quarter.

The SGC is not tax deductible, making the true cost of non-compliance significantly higher than the original shortfall.

Steps to Prepare​

  1. Update your budget. Model the impact of the rate increase on your total payroll costs and adjust financial forecasts accordingly.
  2. Review employment contracts. Determine whether each employee's package is base plus super or total remuneration inclusive of super.
  3. Verify your payroll system. Confirm the SG rate will update correctly and test the first pay run after the change.
  4. Communicate with employees. Let staff know how the change affects their super contributions and, where relevant, their take-home pay.
  5. Plan for cash flow. The increase takes effect immediately — ensure you have sufficient cash reserves to meet the higher contribution obligations from day one.

Preparation is straightforward. The cost of getting it wrong is not.