Senate

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Ralph Willis, MP)

CHAPTER 8 - Superannuation - flat dollar contributions

Overview

8.1 The amendment made in Part 2 of Schedule 4 of the Bill will ensure that the percentage level of superannuation support provided for an employee under flat dollar arrangements is calculated based on the actual superannuation contribution paid by the employer.

Summary of the amendments

Purpose of the amendments

8.2 The amendment to the Superannuation Guarantee (Administration) Act 1992 (SGAA) will ensure that flat dollar contributions are calculated by reference to actual contributions as a proportion of the standard employee's notional earnings base for the contribution period, rather than by reference to the amount specified in the award. [Item 2]

Date of effect

8.3 The amendment will apply from 1 July 1994. [Item 5]

Background to the legislation

8.4 In order to determine if an employer has an individual superannuation guarantee shortfall in respect of an employee, it is necessary to determine:

•

the percentage level of superannuation support the employer is expected to provide for the employee (charge percentage: sections 20 and 21 of the SGAA); and

•

the percentage level of superannuation support actually provided for the employee (sections 22, 23 and 25A of the SGAA).

8.5 If the actual percentage level of superannuation support is less than the expected percentage level of support a shortfall (sections 17 to 19 of the SGAA) will arise.

8.6 Section 25A of the SGAA recognises superannuation guarantee contributions made by employers based on a fixed sum rather than a percentage of employee earnings.

8.7 The actual percentage level of superannuation support for flat dollar contributions determined under subsection 25A(2) is the amount specified in the award divided by the standard employee's notional earnings base set out in the award.

8.8 There are two problems with the current provision. Firstly, if an employer makes a contribution under an award which requires a flat dollar superannuation contribution to be made based upon the earnings of a standard employee, but the employer contributes less than the award amount, paragraph 25A(2)(b) deems that the award contribution has been made. It was however intended that only the actual amount of employer contributions reduce the charge percentage.

8.9 Secondly, where an employer is required to contribute more than the flat dollar amount required under an award in order to avoid the superannuation guarantee charge, the charge percentage is only reduced under section 25A by the amount in the award. To ensure that any additional contributions are recognised employers are currently having to amend awards to increase contributions up to the required superannuation guarantee minimum amount or they are having to make the additional contributions on the basis of each employee's ordinary time earnings.

Explanation of the amendment

8.10 To overcome these problems subsection 25A of the SGAA will be repealed. [Item 4]

8.11 New subsections 23(4A) and (4B) will be inserted after subsection 23(4). The new subsections will ensure that the actual percentage level of superannuation support is calculated by reference to actual contributions as a proportion of the standard employee's notional earnings base for the contribution period, rather than by reference to the amount specified in the award. (The standard employee is known as the adjustment employee under the new subsections). The new provisions will be similar to subsection 25A except that they will refer to actual contributions. The calculation of the percentage level of employer support will also be calculated with reference to actual contributions. [Item 2]

8.12 The percentage level of superannuation support actually provided in relation to the contribution period, by which the charge percentage is reduced, is worked out as follows:

((actual contribution amount)/(notional earnings base))*(period of employment factor)*100%
where:

'period of employment factor' is:

(a)

where the employee's period of employment exceeds the period covered by the award, the fraction representing the period covered by the award as a proportion of the period of employment in the contribution period; or

(b)

in any other case, 1.

The 'notional earnings base' is an amount equal to the lesser of the maximum contribution base and:

(a)

in the case of a full-time employee, the earnings of the adjustment employee mentioned in paragraph 23(4A(b); or

(b)

in the case of a part-time employee, the amount worked out as follows:

((number of hours employed)/(full-time employee's hours))*(the earnings of the adjustment employee)


8.13 The reference to 'subsection (2), (3) or (4)' in paragraph 23(5)(b) will be omitted and replaced by 'subsection (2), (3), (4) or (4A)'. [Item 3]