FibreHR Blog

We share some of our recruitment strategies in our blog. FibreHR, your people are our business.

Maximum Super Contribution Base

Lisa Spiden - Wednesday, March 11, 2015

Employers are required to make compulsory superannuation contributions to a complying superannuation fund, on behalf of employees under the age of 75 years. These contributions count towards an individual’s Maximum Superannuation Contribution Base (MSCB) with the current contribution rate sitting at 9.5% of an employee’s ordinary times earnings. This rate is expected to remain unchanged until 30 June 2021.

Each year, the ATO release the superannuation rates and thresholds which includes a MSCB cap. This cap is particularly important for employers as it stipulates the maximum compulsory contributions they are required to make on behalf of their employees. The MSCB cap must be considered in conjunction with the employment contract as the structure of an employee’s salary will determine whether contributions must continue to be made once the cap is reached or whether an individual employee can nominate and enter into an agreement with the employer as the how the amount is to be paid once the cap is reached.

The 2014/2015 annual MSCB contribution cap is $197,720. This means that an employer is only legally required to make superannuation contributions on earnings up to the MSCB of $197,720 in the 2014/2015 financial year, this equates to $197,720 x 9.5% = $18,783.40 superannuation per annum.

As mentioned, employment contracts play an important role in determining what happens once this cap has been reached. Let’s explore a few examples:

Example 1

The employment contract stipulates a remuneration package of $300,000. We know that the employer is legally required to make superannuation contributions of 9.5% on a maximum salary of $197,720 which equates to $18,783.40. Because the remuneration is a package and does not stipulate how it will be structured, once the MSCB cap is reached the employer is no longer legally required to make the contributions however, they must ensure the employee receives their total package so they can:

a. continue to make superannuation contributions past the cap or

b. the employee can chose to take all earnings above $197,720 as cash

c. the employee can chose what split of cash versus superannuation they would like to take after they have met the $197,720  threshold.   

Example 2

The employment contract states that an employee is paid a base of $250,000 plus superannuation. This may be interpreted in two ways and should be clearly clarified in the contract of employment

Package

Example 1 (9.5%)

Example 2 (MSCB application)

Base salary

$250,000

$250,000

Superannuation

$23,750

$18,783.40

Total Package

$273,750

$268,783.40


You can see from the above example, there is a difference of almost $5,000 per year based on how the packages are interpreted. For this reason, it is crucial that contracts are written very clearly as either a “total package” method or define how the base salary and superannuation will be treated.

It is worth noting, that the treatment of superannuation on bonuses should also be clearly defined in writing as if the MSCB has been reached superannuation may not be required to be paid. Again this will depend on what terms have been set out in the employee’s contract or bonus letter.

Where the cap is reached and the employee wishes for the employer to cease any further contributions to their superannuation, it is strongly recommended that such notification is obtained in writing and retained on the employees file. The notification should also include details relating to the employees instructions with regards to where and how the additional funds should be deposited. Where written notification is not provided by the employee, it would be wise to continue the arrangement of making superannuation contributions.  

This is can be a complex topic and your legal obligations to pay or receive superannuation payments above the MSCB can vary based on one or two words in an employment contract or letter. It is therefore recommended that you seek advice before changing practises for existing or new employees. If you require any further information regarding the Maximum Superannuation Contribution Base please contact fibreHR on 03 8413 0200. 

Comments
Post has no comments.
Post a Comment




Captcha Image

Trackback Link
http://www.fibrehr.com.au/BlogRetrieve.aspx?BlogID=6969&PostID=613075&A=Trackback
Trackbacks
Post has no trackbacks.