House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 1 Removing the monthly minimum threshold for salary or wages to count towards the superannuation guarantee

Outline of chapter

1.1 Schedule 1 to the Bill amends the SGAA to remove the $450-a-month threshold before an employee's salary or wages count towards the Superannuation Guarantee.

1.2 Removing the $450-a-month threshold will expand the coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Context of amendments

1.3 The SGAA establishes the 'Superannuation Guarantee' scheme, which ensures that employers pay a minimum level of superannuation contributions on behalf of their employees. The Superannuation Guarantee is the minimum amount of money an employer must contribute on respect of an employee under this scheme. Generally, an employee must meet the $450-a-month threshold before the Superannuation Guarantee is payable.

1.4 The Superannuation Guarantee has wide coverage, however some employees are excluded. The main cohort of excluded employees are persons who earn less than $450 before tax in a calendar month with an individual employer, affecting an estimated 300,000 people, or 3 per cent of employees. ^[1] These affected employees are mainly young, lower-income, part-time workers - around 63 per cent are female. ^[2]

1.5 The original rationale for the $450 threshold was to minimise the administrative burden on employers administering small amounts of superannuation contributions. Technological advances and the digitalisation of payroll systems, for example Single Touch Payroll, diminishes the rationale for a minimal threshold which adversely impacts low-income workers and women.

1.6 The $450 threshold also helped prevent the creation of low-balance accounts that could get eroded by fees and insurance premiums. However, recent Government changes have reduced the impact of these risks. The Treasury Laws Amendment (Protecting Your Superannuation Package) 2018 capped administration and investment fees at 3 per cent of a member's balance for low-balance accounts and insurance for inactive accounts may no longer be offered without a direction from the member. Further, the Treasury Laws Amendment (Putting Members' Interests First) Act 2019 made insurance opt-in for members aged under 25 and for members with a balance less than $6,000.

1.7 On 27 September 2019, the Government commissioned an independent panel to review the retirement income system (the Retirement Income Review). As part of the review, the panel concluded the removal of the $450-a-month threshold would improve Superannuation Guarantee coverage and equity across the system. ^[3]

1.8 On 11 May 2021, as part of the 2021-22 Budget, the Government announced it will remove the $450 per month threshold to expand coverage of the Superannuation Guarantee to eligible employees earning salary or wages less than $450 in a calendar month from a single employer.

Summary of new law

1.9 A minimum $450-a-month threshold will no longer exclude employees from the Superannuation Guarantee. The salary or wages of eligible employees will count toward their employer paying the Superannuation Guarantee.

Comparison of key features of new law and current law

Detailed explanation of new law

1.10 The SGAA establishes the 'Superannuation Guarantee' scheme, which ensures that employers pay a minimum level of superannuation contributions on behalf of their employees and sets out the means for calculating the amount an employer contributes to the retirement savings account or superannuation fund for the benefit of eligible employees.

1.11 The formula for calculating the amount an employer is to pay the Superannuation Guarantee on a quarterly basis is set out in section 19 of the SGAA.

1.12 Section 27 of the SGAA sets out the salary or wages that are excluded for the purposes of an employer making a calculation under section 19 of the SGAA.

1.13 The main exclusion is provided under subsection 27(2) of the SGAA. The subsection sets out that if an employer pays an employee salary or wages in a calendar month, and the portion of the salary or wages, after applying other exclusions prescribed in section 27 of the SGAA, is less than $450, then the portion of those salary or wages are not to be taken into account (that is, excluded) when calculation an employer's obligation to pay the Superannuation Guarantee.

1.14 In effect, this exclusion establishes the $450-a-month eligibility threshold before an employer must pay the Superannuation Guarantee. If an employee's salary or wage is less than $450 in a calendar month, then the employees earning are excluded from the calculations used by employers to work out their obligation to pay the Superannuation Guarantee on a quarterly basis. If an employee's salary or wage is excluded from the calculations to work out an employer's contribution, then the Superannuation Guarantee amount an employer is liable to pay is $0.

1.15 This amendment repeals subsection 27(2) of the SGAA. In effect, the amendment removes the $450-a-month eligibility threshold established by the exclusion set out in subsection 27(2). [Schedule 1, item 1, subsection 27(2) of Act being amended]

1.16 Removing the minimal $450-a-month eligibility threshold in relation to the Superannuation Guarantee will ensure the salary or wages of all eligible employees earned in a calendar month will count towards an employer paying the Superannuation Guarantee for the benefit of their employees.

1.17 The repeal of subsection 27(2) will improve the equity of the superannuation system, particularly for low-income, part-time workers and for women.

Application provision

1.18 The Superannuation Guarantee is calculated on a quarterly basis in relation to an eligible employee's salary or wages in each calendar month for the quarter. If Royal Assent is received before 1 July 2022, the application provision provides that the amendment will apply to each calendar month in a quarter beginning 1 July 2022. In effect, the amendment made by Schedule 1 to the Bill will apply from the start of the 2022-23 financial year. From 1 July 2022 the salary or wages of all eligible employees earned in a calendar month will count towards an employer paying the Superannuation Guarantee.

1.19 However, in the event Royal Assent is received after 1 July 2022, then the amendment made by Schedule 1 to the Bill will apply from the beginning of the quarter after Royal Assent is received. This reflects that the Superannuation Guarantee is calculated on a quarterly basis. For example, if Royal Assent is received 14 July 2022, then the amendment will apply to each calendar month in a quarter beginning on the next quarter from 1 October 2022.