Salary sacrifice changes

Many employees choose to forego part of their pay and instead have their employer contribute it to their superannuation fund instead.

Prior to 1 January 2020, employers could calculate the amount of superannuation guarantee contributions (SGC) they had to pay based on the reduced salary of an employee after their salary sacrifice had been taken out.

Change 1
From 1 January 2020, SGC must be calculated based on the gross salary, before the salary sacrifice is deducted. Employers will therefore need to make a higher superannuation contribution for employees who previously had their SGC reduced due to sacrificing part of their salary to super.

Let’s look at an example: An employee is paid $100,000 annually and sacrifices $20,000 to super. In 2019 the employer paid SGC on $80,000 – which end up being $7,600. Under the new rules, the employer now pays SGC on the gross salary of $100,000, which is $9,500 – this is an increase of $1,900.

Change 2
The second notable change is that salary sacrifice contributions can no longer make up part of an employer’s compulsory superannuation contributions. Previously, employers could event avoid paying any SGC if the employee sacrificed an amount equal or greater to the compulsory employer contribution.

Here’s another example: An employee receives an annual salary of $100,000 and sacrifices $15,000 to super. The compulsory employer amount of 9.5% on $100,000 is $9,500. Previously, the employer would not need to make any further contribution since the employee has sacrificed more than 9.5% to super. From 1 January 2020, the employer must pay SGC on the gross salary of $100,000 regardless of any salary sacrifice made by the employee. The employer now ends up paying an additional $9,500 per year.

We recommend checking your systems to make sure they calculate the SGC amount correctly. Employers can continue to claim a tax deduction for salary sacrificed super contributions and the sacrificed amounts won’t be subject to fringe benefits tax.