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Can you offset the cost of the superannuation increase against wages?

Since 2014, compulsory superannuation contributions have remained at a steady 9.5% of an employee’s ordinary time earnings (OTE). However, from 1 July 2021, employers will be required to increase their employees’ superannuation guarantee contributions to 10% of their OTE. Under the current legislation, these increases will continue to rise by 0.5% each year until 2025, at which time superannuation guarantee contributions will reach a minimum of 12% of an employee’s OTE.

An issue arising from these increases is the extent to which employers may offset the cost of the superannuation guarantee increase against the wages or salary of the employee. This will depend on the terms of the remuneration and superannuation clauses expressed in the employment contract.

Some employers have anticipated this issue and expressly provided for the right to adjust the salary component of a total remuneration package amount commensurate with the increased superannuation guarantee component. However, in other cases, the contract may simply specify a total remuneration or salary package, comprised of both salary and superannuation. For example, the clause may state: “Your total remuneration package will be $70,000 inclusive of superannuation”.

Generally, this will provide the employer with sufficient authority to decrease an employee’s base salary to increase the superannuation guarantee contributions. A clause drafted in this manner has the effect of maintaining an employee’s overall package, while ensuring the employer can meet its new obligations under the superannuation guarantee legislation.

If the employment contract specifies a monetary amount of the salary and simply states that superannuation guarantee contributions will be made in addition to that amount, in accordance with the legislation, the employer faces two challenges.

Firstly, the employment contract does not authorise the reduction of salary commensurate with the increased superannuation guarantee contributions. Any attempt by the employer to implement this reduction unilaterally may lead to claims that the employer has repudiated the employment contract, which if accepted, may lead to claims of wrongful and unfair dismissal.

Secondly, section 324 of the Fair Work Act 2009 (Cth) prohibits unauthorised deductions from an employee’s salary where they are not for the employee’s primary benefit. A contravention of this provision attracts exposure to the imposition of a civil penalty as well as compensatory orders. In these circumstances, a deduction to an employee’s base salary could only be implemented with the signed, written authority of the employee, and where it can be shown the deduction is for the primary benefit of the employee. A signed contract will not be considered written authority where the amount of the deduction is unspecified. Moreover, for the authority to be valid, the deduction needs to be for the employee’s benefit. Employers will have difficulty arguing that a deduction that completely negates the increased superannuation guarantee contribution is in fact primarily beneficial for the employee.

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