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What increased super rates mean

Helping build retirement savingsLast week, the Australian Government passed legislation that means the superannuation guarantee (SG) rates will gradually increase from 1 July 2013.

For employees, it’s clear – they will get more super in their account which should help them in retirement. I do support the idea of people retiring with more money and having less dependence on age pensions and the like.

But who will pay the extra 3% SG?

In simplest terms, employers will pay more super into their eligible employees’ super accounts. The Government will give tax concessions to that extra money which is what the mining tax is supposed to go towards.

There has been a lot of complaint in the last week from employers and employer groups about the need to find this extra 3% per employee – many had apparently thought the Government was somehow going to fund the increase.

Maybe the extra will come instead of pay increases for employees. But workers unions don’t agree with that concept and think the small percentage can be absorbed by businesses.

I don’t know the final answer and am not taking any political stand point on this either.

Small business people

For the self-employed, I don’t think we’re going to win from this deal.

I am self-employed so my super account only grows if I choose to make it so (or if I treat myself as an employee with a regular wage) – there is no compulsory super for me which means a change from 9% to 12% doesn’t have to affect my super savings.

As a small business I don’t have huge profits that would make it easy to increase employee salary packages by 3% (or the 0.5% steps).

My options would be to

  • reduce pay increases to cover the SG (so their pay over the following 7 years may not increase much regardless of CPI)
  • somehow reduce hours for existing staff (and that wouldn’t be fun for anyone really)
  • pay the extra out of my profits (meaning my take home pay is decreased)
  • increase prices enough to cover the super increases (of course, if clients don’t like that option my business suffers)

I do feel for small businesses with a number of employees as this could cause a lot of stress.

But I do agree with increasing savings for retirement. So is this a necessary pain for a few years for the greater good?

If you have a small business, what are your thoughts on the increased SG?

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