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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?

5 Responses to What increased super rates mean

  • onlinebusinessgal says:

    I agree that this creates some headaches for small businesses. In the end, I think there will be positive results for everyone when retirement time comes. This does not make it any less over the years to come. A small business has two main choices. They can either see a small reduction in their own revenue as a way to cover the increase or they mustr make the decision to pass on the loss to their employees by decreasing their hours or freezing income increases for a few years. It is difficult for both sides.

    • tashword says:

      That’s the issue really – not easy for anyone.

      I guess a SMB could absorb part of the cost and put part of it onto employees through reduced pay increase.

      • onlinebusinessgal says:

        I think what you suggest might be the best option. A business could take on some of the cost while still passing a little on to the employee. This would decrease the negative impact for both parties. It is simply hard to find a win-win solution at this point in time.

      • tashword says:

        I guess each business will have to find their own solution – but some tips from the Government could be handy.

  • tashword says:

    Federal Minister Bill Shorten has said that the last SG increase (a 6% increase between 1992 and 2002) didn’t result in an increase in labour costs or reduced profits. Good if that works this time, too, but I wonder if that is an average rather than true for all businesses anyway?

    He also said the extra cost is only $250 for a $100,000 payroll. That’s not a huge proportion but it’s still a lot of money for a struggling business…

    The extra $110,000 in super for a 30-year old worker sounds good though.

    http://www.news.com.au/wage-trade-off-for-superannuation-rise-likely-sayd-federal-government/story-fn7x8me2-1226306514700

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