Employers should be reviewing their existing employment contracts.
With the reductions in concessional contributions caps for superannuation contributions, employers should review their employment contracts and industrial agreements to ensure that in meeting their contractual or agreement obligations they will not exceed the concessional caps and expose employees to unexpected tax liabilities.
From 1 July 2012, the concessional cap of $25,000 will apply to all employees. The proposed concessional cap of $50,000 for employees aged over 50 with less than $500,000 in superannuation has been deferred until 1 July 2014.
If an employer is making contributions at the rate of 9% without regard for the maximum earnings base, (ie contribution in excess of the amount required to meet the obligations under the Superannuation Guarantee (Administration) Act 1992), an employee earning more than $278,000 per annum will exceed the concessional cap. Contributions made in excess of the concessional cap are subject to excess contributions tax, making them largely ineffective for taxation purposes. Some contracts and industrial agreements provide for contributions to be made at higher rates. Employers should review their contracts and industrial agreements to ensure that they allow sufficient flexibility to deal with these changes and avoid employees facing unexpected tax liabilities.
From 1 July 2012 the health insurance rebate will be means tested. Where an employer is paying health insurance premiums for its employees or there are salary sacrifice arrangements in place, employers should be considering whether changes are necessary as those premiums increase. The current rebate of 30% will start to be reduced where an employee earns more than $84,000 as a single or where a family income is more than $168,000. Employers and employees alike may wish to consider making a prepayment in respect of premiums before 1 July 2012. Such premiums will still attract the rebate.
This is an opportunity to ensure that the contracts are up to date with current legislation particularly with regard to accrual of leave entitlements such as annual leave, personal leave and long service leave so that these entitlements are being accrued correctly in the payroll system.