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How to calculate superannuation

Anita van Wyk Payroll

Superannuation, that pesky ‘s’ word is a much misunderstood Australian phenomenon. To know how to calculate superannuation we must first know the rate employers need to contribute. The current percentage in the 2017/18 financial year is 9.5. That rate will continue to gradually increase up to 12% by 2025.

Employees seem to forget that this is very much their money. Money, that as an employer you are paying them, sort of like a savings account that they just can’t access quite yet. It is a legitimate part of their pay packet and not something to be dismissed lightly.

Yes, for many of us in our 30’s and 40’s that money would really come in handy right now. We’re planning families, raising children, and we’re trying to pay down our mortgage. It’s hard enough to get ahead as it is! However, someday in the not so distant future, we all want to retire – which is where super comes in. What might seem annoying now, will come in very handy in 20 or 30 years time. The envy of the world over (yes, true fact Australia has one of the best retirement saving schemes there is) as an employer we could say to calculate superannuation properly is your national responsibility.

How to calculate Superannuation currently

Generally, if you pay an employee more than $450 before tax in a calendar month, you will need to calculate superannuation on top of their wages. Depending on the type of superannuation, the amount will be paid in addition to their pay (an employer expense), or deducted from their pay (a deduction).

The minimum you must pay is called the superannuation guarantee (SG).

  • The SG is currently 9.5% of an employee’s ordinary time earnings (OTE).
    • OTE is usually the amount your employee earns for their ordinary hours of work. It includes commissions, shift loadings and allowances, but not overtime payments or allowances.*
    • If you can’t determine the normal hours of work (such as for casual workers), the actual hours the employee works will be their OTE
    • The Fair Work Act’s definition of ordinary hours for workers not under an award or agreement caps them at 38 hours.
  • You must pay SG at least four times per year, by the quarterly due dates.
  • You must pay SG into a complying super fund. Most employees are eligible to choose which fund you pay into.
  • If you don’t pay the SG on time, you may have to pay the superannuation guarantee charge.

* What is and is not considered OTE is imperative and you really need to know how to calculate superannuation properly. The ATO has put together this great checklist . The content is by no means exhaustive and is for general guidance only, but it does include allowances, expenses, leave, termination payments and bonuses.

Once you’ve got OTE covered, things get easy. To calculate superannuation simply multiply your employee’s OTE for the quarter by the SG rate (or the percentage you use if you’re paying super at a higher rate).

Lets look at Chloe for example:

During the second quarter of the 2016 – 17 financial year (1st October – 31st December 2016) Chloe’s OTE were $16, 700 (gross salary and wages/before tax).

The super contribution Chloe’s employer had to pay was:
$16,700 x 9.50% = $1, 586.50.
Note: If you make super contributions under an award, check that they are enough to satisfy both the award and the SG.

How to calculate Superannuation in the future

Yes, just when you thought you had it nailed … things will be changing. But don’t fret you’ve got a little while to plan. Under current legislation and as detailed above we calculate superannuation at a rate of 9.5% of gross salary and wages. This rate will be increased by 0.5% on 1 July 2021. Further increments of 0.5% will apply annually up to 2025/26, when the superannuation guarantee will be set at 12%.

The table below shows the yearly rate increase:

2018/2019 – 9.5
2019/2020 – 9.5
2020/2021 – 9.5
2021/2022 – 10.0
2022/2023 – 10.5
2023/2024 – 11.0
2024/2025 – 11.5
2025 and onwards – 12.0

Handy tools for calculating superannuation

Thanks to modern technology there are a number of free online tools you can use to determine how to calculate superannuation contributions. Below we list a couple of our favourite.

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