Removing the $450 monthly retirement threshold makes Single Touch Payroll (STP) “a must for all” small businesses unless they want to deal with an “administrative nightmare”, according to one accountant.
Legislation to remove the minimum income threshold for superannuation guarantee payments passed parliament on Thursday, meaning employees who earn less than $450 a month with an employer will soon be eligible for a retirement pension.
Australian employers are currently not required to pay a super to workers who earn below this limit each month.
The federal government has announced its intention to remove the minimum monthly income threshold in the budget 2021as part of an effort to improve equality in the retirement system, as the majority of workers earning less than $450 a month are women.
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On Thursday evening, Pensions Minister Jane Hume said on Twitter that removing the “discriminatory and unfair relic” will make “a real difference” for thousands of workers.
Hume said the change means 300,000 Australian workers will receive super contributions from their employers for the first time and around 200,000 of them will be women, reflecting estimates from the government’s Retirement Income Review.
The change will take effect from July and accountant Lisa Greig, founder of the tax and business advisory service Perigee Advisers, urges employers whose staff currently earn less than $450 a month to start preparing now.
Although the use of the STP system is now mandatory for all Australian employers, Greig says there are still small businesses that do not use the system. For these companies, removing the threshold could increase the complexity of compensation for workers who work only short shifts and potentially lead to a financial cost in the event of an error.
Greig gives the example of a small business that wants to test a new employee and agrees to pay them $25 an hour for a four-hour shift. The employer would pay the worker $100 and after July they would also have to pay $10 in superannuation. If that $10 wasn’t paid on time and into the right pension fund, “it could end up costing you $50 by the time you sort it out,” Greig says.
“It increases the administrative burden for small businesses trying to do the right thing,” she said. SmartCompany.
Greig worries that some companies are choosing to pay workers cash for short shifts instead; ask the worker to bill him as a contractor instead; or else not paying them at all, at the risk of getting the wrong compliance.
Greig says it will also be essential for the recently introduced super fund stapling system – which “clips” workers to the first super fund they join when they start a new job unless they explicitly choose to join another – works as expected, as some companies will rely on new workers to provide the correct details of their super fund in order that the money goes to the right place.
“If they get it wrong…and it bounces back, the company will have to prepare an expense report, do this and do that. It could end up costing a few hundred dollars,” she says.
The end result, says Greig, could be some small businesses wondering if they should employ someone.
The pension guarantee is currently set at 10%, after increased by 9.5% in July 2021. It is expected to increase to 12% by 2025-26.
The Australian Taxation Office provides a calculator on his site for employers who wish to understand their pension guarantee obligations.