New superannuation rules and their effect on beauty businesses

For quite a while there’s been talk that the employer contribution to employee superannuation funds will increase to 12%. In fact, by original accounting when implemented in 1992, it was meant to reach 12% by 2001, then that was bumped to 2014 and finally scheduled for 2019, but increases have been frozen by various subsequent governmental regimes and we’ve been at 9.5% for years.

Changes announced under the new federal budget this week have confirmed that the increase to 12% in employer super contributions will be reality in coming years, though, rising from the current 9.5% of an employee’s wages to 12% by 2025, a move supported by approximately 75% of Australians, according to the Association of Superannuation Funds of Australia.

Addition changes to super rules mean that the minimum threshold of $450 in earnings per month to qualify for employer contributions have been scrapped. That means anyone who is employed – including casual and part-time employees – is now eligible to have employer contributions deposited into a superannuation fund on their behalf. Chief Executive Women President Sam Mostyn says “The decision to abolish the minimum threshold for superannuation payments is welcome and will strengthen women’s economic security.” It is estimated that the approximately 300,000 workers who will benefit from this change (3% of employees) are mainly women (~65%).

CEO of Verve Super Christina Hobbs says “The most important change that will impact women in a positive way is the removal of the $450 monthly threshold before someone earns super. This means that if you earn less than $450 a month from an employer, you will now have a right to be paid super and if you are the employer of someone in this category you will now be required to pay super. This is good news for women, as women hold the bulk of all casual jobs, and many women were working across multiple casual jobs not meeting the threshold and not being paid super.” 

The ABC reports that change in who is eligible for employer super contributions “will cost just $4.8 million in 2022-23, rising to $13.8 million in 2024.”

What does this mean for you as a beauty business/employer?

“Council of Small Business Organisations Australia CEO Peter Strong says increasing the super guarantee now ‘is not a win’ for workers given the effect higher super payments will have on small businesses, including salons.

‘It’s the employees that will pay for this. Wages won’t see a decrease, what they’ll see is less hours and less jobs. It’s not a win for the workers,'” Mr Strong said in a piece we ran on superannuation late last year.

Stefanie Milla of the newly formed Aesthetic and Beauty Industry Council (ABIC) and founder of skincare brand Dermalist says, “A vast majority of the aesthetic and beauty industry is run by small businesses, and last year both employees and employers in the industry suffered during the shutdowns.

Some concerns that may arise for both employees and employers are, that some businesses are not able to afford the increase, and that this will inadvertently cause a reduction in employee hours, or a rise in a business’s prices in order to be able to afford the increase.”

But that could be changing as the economy picks up steam again. With the economy on uncertain footing in 2020 due to the pandemic, it was hard to see a viable path forward on this for so many businesses impacted financially by the lockdowns. But since then, plenty of state governments have stepped up their assistance to small businesses offering grants and support that wasn’t yet available throughout most of 2020.

New rules do not take effect immediately, so you have time to set up systems to help pay into super funds. If you don’t already, talk to your employees about joining a compliant fund to ensure you get maximum tax benefit on your contributions and to make sure your budget accounts for the added cost.

Mill points out that “Employers still have over a month to prepare for this change [the first increase of .5%]. It is worthwhile for businesses to factor in this additional payment when forecasting budgets and costs from the 1st July, as it may have an impact on rostering arrangements.”

Hobbs says “For business owners, the biggest change will be that you will now need to budget in to pay any workers super who currently weren’t receiving super because their monthly salaries were below $450. The government will issue further directives to small businesses about when this will come into effect and what action needs to be taken. For now, it may be worthwhile to just know that it is something you will need to budget for this, most likely from some time in early to mid 2022. This superannuation guarantee rate will also increase to 10 per cent from July 1, 2021, again this is something that you should be budgeting for now, and again expect notification from the government soon.” 

Milla also brings up the point that “Questions have been asked about employees that are paid a total remuneration package (inclusive of super), questioning if it may be possible for the total package to remain the same, but with the rate of super increased (in other words their base salary will decrease, but their base salary plus super will remain the same).

For employers to be able to implement this, it is important that they check their employee employment contracts (and any other assurances given to employees) carefully, to ensure this is permitted. This course of action will affect the employee, so fairness and open communication should be exercised. We recommend to contact the ABIC as we offer our members specific HR and IR advice, including advice on the upcoming superannuation guarantee increase and how to handle employee concerns and questions.”

Tools exist to help small businesses pay super contributions like the Small Business Super Clearing House, which an accountant or bookkeeper can use to make payments on your behalf (which all have to be done the SuperStream way, as per the ATO website). Make sure super funds chosen by your employees are compliant or your contributions won’t be tax deductible.

What does this mean for you as an employee of a beauty business?

If you’ve been working for a salon, spa, shop, treatment rooms, waxing salon, nail spa, makeup studio or any other type of beauty business in a casual or part-time fashion, and you weren’t eligible for employer superannuation contributions before because of low monthly pay or employment status, you will likely be eligible by July 2022. Contractors are (and have been) eligible for super contributions if they are paid based on time rather than outcome.

You’ll need to speak to your employer about contributing to a super fund on your behalf before mid-2022, as they might not be aware yet that they will soon be required to contribute to a super fund on your behalf no matter how low your pay is (all minimum threshold requirements will be scrapped, starting mid-2022). And you might need to renegotiate your contract, if you’re on one. You’ll also need to choose a fund if you don’t yet have one, enrol and then provide fund details to your employer so they can make direct contributions.

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