The Aussies facing a pay cut from the July 1 super increase

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Employees are finding out whether their employer is paying the additional 0.5% superannuation guarantee or docking their pay to meet their legal requirements.

It was a shock for many ANZ employees yesterday to receive a note from the bank, that their wage will be cut from July 1.

The ANZ isn't picking up the tab for the additional superannuation guarantee rate of 0.5% for employees paid on a package that includes pay and superannuation. Instead it is passing the cost onto employees.

the aussies expected to pay their super increase out of their own pocket

Employees on individual contracts or a total employment package that binds salary and superannuation together are finding out whether they are winners or losers with the payment of the Super Guarantee (SG).

Who wins?

Award wage earners will be getting more money in their superannuation from July 1 without any reduction in their take-home pay. So too will many people who work under enterprise agreements (EA).

Both groups make up around 60% of Australian workers. They will benefit from arrangements set up - often by their union - to pay superannuation on top of their wage.

But the superannuation guarantee won't be in their hand as take-home pay.  Instead it will go into their superannuation fund as the superannuation guarantee jumps from 9.5% to 10%.

But for the 40% of Australians who have an individual pay arrangement with their employer that pays superannuation as part of their salary package, the 0.5% could be shuffled within your existing remuneration package. More money will go into super, but this will be offset by a reduction in take-home pay.

It is up to the discretion of the employer. Actuarial research firm Mercer, recently surveyed 145 businesses and found almost two-thirds with a total package approach - where superannuation is bundled in with their salary - were passing on at least some of the cost to employees.

Highly profitable employers who have been aware that this increase in superannuation was due to start are among the companies cutting wages. Employers such Macquarie Bank, ANZ, Telstra, BOQ and AGL have told some of their employees to expect a decrease in their salary from July 1, according to a report by ABC.

A spokesman from Telstra told the ABC that about 5% of its workforce would have the super increase taken out of their base pay, resulting in lower wages.

He said this included senior managers and executives who would have to fund their own super rise, as the rest of Telstra's workforce was on enterprise agreements that didn't allow the employer to cut wages.

In a climate of wage stagnation since 2011 and a shortage of talent because of border closures, Mercer says employers who reduce employee take-home pay should be aware that it "will almost certainly impact employee engagement and retention."

The question is, asks Mercer, to what extent?

"Asking employees to absorb or split the additional SG, or even subsume the increase in existing above-minimum employer contributions all might be perceived as putting economics before empathy," says Mercer. "Employers should be mindful of the current - and extraordinary - socioeconomic context when strategising their SG approach, not just for 1 July this year, but towards 2025."

Unions such as the Australian Services Union believe it is wrong to take it out of wages.

"It is important to note that this superannuation increase is intended to expand retirement savings and should not result in a cut to take home pay for workers," says Emeline Gaske, ASU assistant national secretary.

Julia Angrisano, national secretary of the FSU, says that financial services employees have worked long and hard during the pandemic on issues such as mortgage and credit card freezes and were classified as essential workers. She didn't expect that the ANZ would not pay the 0.5% SG to all employees and cut wages. "I am quite shocked that the bank would take this approach. We were given no prior notice that this was coming."

"Wages have never been so stagnant, and the upcoming superannuation payment is much needed, particularly by women," says Angrisano.

Gaske encourages all workers to check their first payslip after July 1 to ensure that their employer has applied the appropriate superannuation increase.

"If workers have not received the 0.5% legislated increase in superannuation on July 1 and require assistance, we encourage workers to get in contact with their relevant union," says Gaske.

How the 0.5% is paid?

If someone is on an annual remuneration package of $80,000, they would be paid an annual salary of $73,059 plus superannuation at 9.5% of the salary component, being $6,941. After 1 July, they are still paid $80,000 but the components change so that the annual salary decreases to $72,727 and the superannuation at 10% of the salary increases to $7,273. Their total compensation is unchanged.

Employees paid a wage plus super stand to gain the additional 0.5% superannuation. So someone paid $73,059 plus $6,941 in superannuation, will have that superannuation contribution increased to $7,306 from July 1, 2021, an increase of $365. Their total compensation increases to $80,365.

If your employer does dock your pay and you are out of pocket by 0.5% of salary, you will benefit from a small tax benefit as the money going into your superannuation is taxed at 15% which is lower than your personal tax rate. For example, if you are earning $80,000 in a remuneration package, you were paying 32.5% tax plus 2% Medicare levy on the $365 that will switch to super, so that the net amount in your pocket was $239.

The tax rate on superannuation contributions is 15%, so the $365 switched to super results in a net $310 contribution to your superannuation account. You are $71 better off, but you would be much better off if you received a genuine superannuation increase.

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.

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