‘Superannuation stapling’ and a minimum wage increase for some awards come into effect from today, 1 November. Here’s what HR needs to know.

The Fair Work Commission rolled out stages one and two of its annual wage review earlier this year, which saw changes to certain awards, as well as a 2.5 per cent increase to the national minimum wage, taking it to $772.60 per week or $20.33 per hour. Stage three is in place from today, and includes a raise to 21 more modern awards.

At the same time, a significant change to superannuation, colloquially termed ‘superannuation stapling’, comes into force from today. It places a greater onus on employers to identify whether an employee has an existing super fund they need to contribute to.

HRM discusses the main changes with Chris Oliver, Director of People + Culture Strategies.

Increases to modern award minimum wages

In mid-2021, the FWC’s annual wage review included an increase to the national minimum wage and Modern Award minimum wages by 2.5 per cent.

This change has been rolled out in three stages, the third of which comes into effect as of today, 1 November 2021.

To recap on the changes that have already taken place, the stage one increase for Modern Awards came into effect from the first full pay period after 1 July 2021. The second stage was for the General Retail Industry Award 2020 only, and was enforced from 1 September 2021.

Twenty-one Modern Awards fall under stage three, including the Airservices Australia Enterprise Award (2016), Restaurant Industry Award (2020) and the Fitness Industry Award (2020). These Awards will have to implement the 2.5 per cent increase to minimum rates of pay from today.

Oliver says employers need to be aware of a few key points:

• For employers paying Award rates, they need to ensure they are aligned to the increase in rates.

• For employers paying rates that exceed the minimum rates under the Award, Oliver says it’s a question of asking whether the increase is capable of being absorbed in their ‘above award rates’ already.“From that perspective, that requires some calculation to determine whether or not the above award component is still sufficient to ensure they are paying above the Award’s new minimum rates.”
• Some employers might have entered into annualisation pay arrangements.
  
  “Broadly speaking, these are arrangements where employers endeavour to annualise the minimum entitlements under an Award by way of payment of an annual base salary. This may have been done pursuant to the Award’s annualisation provisions, or through a contractual annualisation arrangement.”
  
  In this circumstance, Oliver says companies will need to ensure there is still sufficient above Award components or excess. These employers also have specific audit obligations.“They must ensure auditing and checking to make sure the annualised arrangements have left the employee in a position where they are receiving more than they would under the Award.”
• For those employers covered by an enterprise agreement, the rates of pay under the agreement can’t fall below the rates of pay under a Modern Award, so it may be that employers who have older enterprise agreements need to check that their rates of pay (if they are still only paying the rates in their enterprise agreement) are still sufficient to meet their obligations.

Introducing ‘superannuation stapling’

Under the previous arrangements, when an employee moved from employer A to employer B, the employee had the option to choose a superannuation fund. But often employees would forget, or choose not to, hand in their super choice form.

“[An employee] may have a fund in place with employer A, but failed to notify employer B of their choice of fund. If they don’t make a choice in that sense, the new employer uses their own default fund.”

Many employees will therefore have multiple superannuation funds, requiring them to pay duplicate account and management fees, and potentially fees for overlapping insurance arrangements under those funds.

“It may be that employees’ retirement savings are being whittled away unnecessarily, so the idea is to try and get the employee the best outcomes by minimising the leakages.”

Under recent changes to the Superannuation Guarantee (Administration) Act (1992), an employee’s superannuation fund will now be ‘stapled’ to them.

“The concept of superannuation stapling is that the super arrangement is [attached] to the individual and therefore when they change employment, their superannuation arrangements go with them,” says Oliver.

“It may be that employees’ retirement savings are being whittled away unnecessarily, so the idea is to try and get the employee the best outcomes by minimising the leakages.” – Chris Oliver, Director of People + Culture Strategies

“The stated purpose of the change is principally to try and minimise some of the downfalls that can happen for employees when they are changing jobs and have multiple funds in place.”

If a new employee does not select a super fund or doesn’t submit their choice form, rather than the employer choosing their default fund, the employer must contact the ATO.

“In doing that, they make an inquiry with the ATO to ascertain whether or not the employee has a stapled fund.”

One of the following categories may apply to some employees joining your organisation:

• The employee has multiple super funds. In this situation, the obligation to select a fund does not lie with the employer, but the ATO will inform the employer which one they should contribute to.

• An employee doesn’t have a ‘stapled super fund’, which the ATO will inform the employer of.
  
  “The employer can then make contributions into their default fund,” says Oliver.

• The contributions that are going into the stapled fund aren’t accepted (i.e. if there’s an administrative error). The employer will then need to make a second contribution. If the second attempt is unsuccessful, the employer must inform the ATO, who will propose an alternative stapled fund if one is available. Otherwise, the employer will likely be advised to contribute to the organisation’s default fund. 

“It’s just adding that extra step between choice and default,” says Oliver. “There is now an obligation on the employer to take an extra step first, which is to make the inquiry at the ATO. You would reasonably anticipate that most employees, other than people being employed for the first time, would have a stapled fund.”

Oliver says employers need to ensure they’re complying by taking a few key steps:

• Make sure their processes are now aligned to ensure they are making inquiries with the ATO in circumstances where an employee does not make a ‘choice’.

• Review employment contracts. “Ensure that the language complies with the changes,” says Oliver. “For example, if the contract says, ‘If you don’t make a choice, then we will be paying superannuation into this default fund’, it will need to amending.”
• For employers that have enterprise agreements in place with prescriptive superannuation obligations, they will need to check the language of the enterprise agreement.
  
  “Those employers may, if they haven’t already, need to get specific advice to ensure that they are complying with the new requirements in the face of potentially contrary obligations under the enterprise agreement.”
  
  Oliver says this issue could apply to enterprise agreements formed prior to January 2021.
  
  “Under the current arrangements, the concept is choice, staple, then default. Under some enterprise agreements, it may be that the choice issue does not come into play, but the issue of stapling still does.”

‘Superannuation stapling’ applies for any circumstances where an employer needs to pay superannuation contributions – i.e for contractors, too.

Throughout the process of making a superannuation contribution, irrespective of whether there’s a prescriptive obligation for an employer to inform the employee of each step of the process, employers should keep their employees in the loop, says Oliver.

“It’s always best for an employer to ensure their employees are informed. For anything to do with a people management issue, whether it’s superannuation, wage rates, or another employment-related issue, communication is key.”

Staying abreast of ‘superannuation stapling’ and other areas of compliance is vital for HR professionals. AHRI’s short course, Introduction to HR Law, covers the main pieces of legislation. Book in for the next course on 17 November.