Labor’s proposal to abolish the Superannuation Guarantee threshold would add more cost to small business owners as well as administrative headaches.
Labor recently announced that if elected next year, they are committed to reducing the current $450 Super guarantee threshold by $100 every year until it no longer exists.
The Superannuation Guarantee
The Superannuation Guarantee threshold was put into effect back in 1992 to tackle compliance cost concerns or all the expenses a company incurs in order to adhere to industry regulations. However, since the threshold is not indexed to inflation, it had already become less effective than it could be.
Under the current Superannuation Guarantee, businesses are not required to contribute superannuation to their employees who earn less than $450 every month.
Additional costs for employers
If Labor’s plan of scrapping the threshold is realised, it will significantly raise business compliance costs and overall staff costs. It is predicted that businesses who will be affected by the change would see an additional $42 – $43 additional cost per month for each employee.
The extra Super Guarantee contributions would also result in higher payroll tax liabilities. The extra super contributions could push small businesses over the payroll tax threshold which could result in employers getting imposed with two additional sources of costs.
A management headache
The implications of Labor’s proposed plan are magnified because of payroll tax. It would cause employers an administrative headache when working out which employees require super obligation.
In addition, businesses who ramp up hiring during busy periods such as the holidays could run into issues when trying to account for the different super contributions they would have to pay for those employees. Even more so if it pushed them above the payroll tax thresholds.
Should Labor win government in 2019, small business owners should update their systems to account for the effects of Super threshold changes and be on alert for potential policy changes.
This article first appeared at smartcompany.com.au.
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