Prepare for the Super Guarantee Rate Increase

From 1 July 2025, the super guarantee rate is increasing to 12%. We discuss all you need to know about managing this increase, and when to pay super.‍

What is the Superannuation Guarantee?

As an employer, you're likely familiar with the Superannuation Guarantee (SG) — the regular contribution you're required to make to your eligible employees' super funds. Regardless of the size of your business, this contribution is mandatory.

The SG constitutes part of your employees' total remuneration, calculated as a percentage of their gross salary or wages. The Australian Government sets this percentage, and it may change over time. Below is a table of historic superannuation guarantee rates. From 1 July 2021, the rate has been increasing by 0.50% every financial year. There are not currently any plans to increase the rate from 12%, but of course, this is always open to change.

Super guarantee increase approaching

As the 2026 financial year approaches, it's important to stay informed about changes in superannuation regulations. One significant adjustment is the increase in SG contributions from 11.5% to 12%. The super contributions payable will be based on the employee's ordinary time earnings (OTE), and the amount is added on top of regular wages or salary.

OTE typically includes earnings for standard working hours and incorporates various components such as commissions, shift loadings, allowances, bonuses, and over-award payments. However, it excludes overtime payments. The Australian Taxation Office (ATO) provides further information about types of payments that are OTE.

Employers should prepare for this adjustment by updating any manual payroll systems to reflect the new contribution rate. If you're using a payroll solution like Xero, you won't have to manually update anything. Xero will automatically apply the updated super guarantee rate to your employees' ordinary time earnings each pay period.

While a 0.5% increase may seem modest, it can have a meaningful impact on employees' long-term retirement savings accumulation, so it's important to keep up to date with superannuation obligations.

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When to pay employee Superannuation Guarantee

It's important to understand your obligations regarding SG contributions for your employees. Regardless of their salary, if they meet the eligibility criteria, you are required to make quarterly SG contributions to their super account. These contributions are calculated based on their ordinary hours, which are outlined in the section below.

It's crucial to note that all types of employees — whether full-time, part-time, or casual employees — are eligible to receive SG payments from you. However, it's worth noting that if you employ individuals under the age of 18 or those classified as private or domestic workers, such as nannies, they must work more than 30 hours per week to qualify for SG payments.

To prevent incurring the super guarantee charge (SGC), ensure that employer contributions reach the employee's superannuation account on or before the quarterly due date. Quarterly payment due dates recur regularly throughout the year:

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Maximum super contribution base

From 1 July 2025 the maximum super contribution base (essentially the maximum income eligible for SG) will decrease to $62,500. If any individual employee's earnings base exceeds this maximum limit for the quarter, you are not required to pay super guarantee contributions on their earnings above $62,500.

‍For example, if you have an employee who makes $100,000 for the quarter, you are only required to pay the maximum SG payment amount of $7,500 for that quarter. When an employee earns above the maximum contribution base, you simply pay $7,500 rather than 12% of their earnings.

Paying super to contractors

When it comes to employee vs contractor, there are criteria surrounding SG payments for contractors. If you hire contractors, you may need to pay SG to their super fund at the applicable SG rate. This applies particularly to contractors whose contracts primarily involve their personal labour and who are required to perform the work personally — If the employer contracts a company, trust, or partnership rather than an individual for the labour, the contractor is typically not eligible for SG payments.

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We can help

Remaining compliant with Superannuation Guarantee system is crucial for both compliance and employee well-being. With the upcoming increase in SG contributions and the various criteria surrounding eligibility, it may be necessary to seek the help of an expert.

At Bonerath & Co., we understand the importance of ensuring your superannuation obligations are met accurately and efficiently. Our team is dedicated to providing tailored solutions to meet your needs and ensure seamless compliance with SG requirements (and other taxation and accounting needs).

If you have any questions or need assistance with managing your superannuation obligations, don't hesitate to reach out to us. Contact us today for a discussion on how we can support you.

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FAQs

What is the concessional contributions cap?

The concessional contributions cap is the maximum amount of before-tax contributions that can be made to your or your employee's super fund each year without contributions being subject to extra tax. The cap is currently set at $30,000. The superannuation guarantee counts towards the concessional cap. These contributions are taxed at 15% when they reach the super fund.

Can I pay my employees more than 12% super?

If you have employees who are already paid superannuation of 12% or more, then you are not likely to be legally obligated to pay SG above this amount. However, it's important to check any employee agreements you may have regarding a remuneration package.  

Do I need to manually update my payroll system for the 12% SG rate?

‍If you’re using a cloud-based payroll system like Xero, the new rate will automatically apply from 1 July 2025. However, if you run payroll manually or use a less automated system, you’ll need to update the SG rate to 12% yourself to ensure compliance.

What happens if I miss a super payment deadline?

‍Missing a quarterly SG payment deadline can result in a Superannuation Guarantee Charge (SGC), which includes the unpaid SG amount, interest, and an administration fee. The SGC is not tax-deductible, so it’s essential to pay on time to avoid penalties.

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