Compulsory superannuation guarantee contributions are currently set at 10% of an employee’s ordinary time earnings. However, the superannuation guarantee contributions will increase progressively by 0.5% each year until 1 July 2025, at which time the superannuation guarantee contributions will reach 12%.
Employers often question the extent to which they may offset the cost of the compulsory superannuation guarantee increase against the wages or salary of an employee.
Whether or not an employer can offset the cost of the increased compulsory superannuation guarantee against an employee’s wages or salary will depend on the terms of the employee’s employment agreement.
ABILITY TO REDUCE SALARY TO OFFSET INCREASES IN SUPERANNUATION
A written employment contract which includes a term which contemplates an increase in the compulsory superannuation guarantee may expressly authorise an employer to adjust the salary component of a total remuneration package to take into account the increase in the compulsory superannuation guarantee.
Alternatively, an employer will have sufficient authority to decrease an employee’s salary to absorb the increase in compulsory superannuation if the written employment contract provide that an employee will receive a total remuneration package inclusive of superannuation. For example “The employee will be paid a total remuneration package of $100,000 inclusive of superannuation”.
INABILITY TO REDUCE SALARY TO OFFSET INCREASES IN SUPERANNUATION
If the written employment contract provides that the employee will be paid a particular salary and superannuation will be paid in addition to that salary. For example “The employee will be paid $80,000 plus superannuation”. In this case, the employment contract does not authorise the employer to reduce the employee’s salary to take into account the increase in superannuation.
CONSEQUENCES FOR UNLAWFULLY REDUCING AN EMPLOYEE’S SALARY
If an employer reduces an employee’s salary to offset the cost of an increase in superannuation when the employment contract does not authorise them to do so, the employer is at risk of a claim that they have repudiated the employment contract which may lead to a claim of unfair dismissal.
Further, the employer may be held to have contravened section 325 of the Fair Work Act 2009 (Cth) which prohibits unauthorised deductions from an employee’s salary where the deductions are not for the employee’s primary benefit. A contravention of section 325 of the Fair Work Act 2009 (Cth) can result in the imposition of a civil penalty up to a maximum of $13,320 for an individual and $66,600 for a corporation.
This article is prepared to only provide general information about the topic. It is not intended to be used as advice in any way.