By Charles Power

On 1 July this year, the superannuation guarantee (SG) rate increased from 9.25% to 9.5%. This has led a lot of Charles’ clients to ask whether this increase can be absorbed into an employee’s overall package.

In other words, can you offset the increase in superannuation cost against the employee’s salary on the basis that your agreement to the employee is only to pay them a certain salary package (i.e. salary plus super)?

Fair Work Act provisions: When is it okay to deduct payments?

The question of whether an employer can reduce an employee’s salary to make up for the superannuation guarantee charge (SGC) increase allows me to introduce some FW Act provisions which, in my experience, many employers do not know about.

What are your pay obligations under the Fair Work Act?

Part 2.9 Division 2 of the FW Act imposes rules about the payment of wages and what you can and cannot deduct from wages as an employer.

The rules apply to:

• wages;
• salaries;
• commissions;
• bonuses;
• loadings;
• monetary allowances;
• overtime payments;
• penalties; and
• payments for leave; but
• not to superannuation.

These rules only apply to amounts payable to the employee in relation to the performance of work. Therefore, if the entitlement to be paid these amounts has not yet accrued or has been lost or forgone, these rules do not apply.

The first rule is in section 323 of the FW Act. It provides an employer must pay these amounts:

• in full (subject to lawful deductions);
• in money (as opposed to in kind);
• by either cash, cheque, EFT or a method authorised by an applicable enterprise agreement or award; and
• at least monthly.

When can you deduct an amount from an employee’s payment?

The second rule is contained in section 324 and entitles you to make a deduction from an amount payable to the employee if the deduction is authorised.

The authority can derive from a legal instrument, i.e. legislation, a Fair Work Commission order, a court order, a modern award or an enterprise agreement.

For example, if an employee resigns but does not give the notice required under an applicable modern award, the modern award authorises an employer to deduct from any monies due to the employee on termination under the award or the National Employment Standards “an amount not exceeding the amount the employee would have been paid under this award in respect of the period of notice required by this clause less any period of notice actually given by the employee.”

No legislation or award authorises an employer to reduce wages or salary commensurate with superannuation guarantee charge (SGC) increases. In the absence of any enterprise agreement provision for this authority, once again the reduction can only occur if it is authorised.

Authorisation for reducing payment: What’s required?

You can only deduct an amount from an employee’s salary if:

• the employee authorises it in writing (and, if the employee is under 18, the employee’s parent or guardian also agrees to the deduction);
• the authority specifies the amount of the deduction; and
• the deduction is principally for the employee’s benefit – an arrangement under which an employee chooses to forgo wages payable in return for an increase in superannuation will meet this test.

I have been asked whether an employment contract signed by employees that provides for an employee to receive a certain salary package amount is sufficient written authorisation to reduce wages or salary commensurate with SGC increases. In my view it isn’t, because the amount by which the employer may reduce salary is not specified. The contract clause needs to explain how the employer is entitled to reduce the salary component of the remuneration package commensurate with any increase in the SGC component.

What if you reduce an employee’s salary without their authorisation?

An unlawful deduction contravening section 324 exposes an employer to civil liability, which may lead to:

• orders to compensate the employee; and
• penalties.

Of course, if you have already reduced an employee’s salary to absorb some or all of the SGC increase and the employee has not objected and has continued working as normal, the employee has probably accepted the variation to the remuneration terms of their employment contract. In this case, you will not attract any liability.