What is superannuation?

Superannuation (super for short) is an Australian long-term pension program designed to help employees accumulate funds over their working life which is accessible upon retirement.

It provides a structured way for individuals to save for the future while working. This fund is deposited in a superannuation account which will grow through contribution and appreciation until retirement.

The money in a super account can be withdrawn under certain circumstances—when an employee retires or gets to preservation age which ranges from 55 to 60 years old depending on when they are born.

What are the requirements for superannuation?

Under the Superannuation Guarantee (SG), employers must pay super contributions of 11.5% of an employee’s ordinary time earnings (OTE).

OTE refers to the amount of money an employee earns from their ordinary hours of work. This doesn’t include overtime, public holidays, sick leave/carer’s leave, or annual leave.

The following employees are eligible for superannuation in Australia:

• An employee over 18 years
• An employee under 18 years old but works for over 30 hours weekly
• A domestic worker (such as a homekeeper or nanny) working over 30 hours weekly.

Employees working full-time, part-time, or casual workers are eligible for an SG. An employee who’s also a temporary resident is also eligible.

Super needs to be paid at least every three months into the employee’s nominated account.

How does superannuation work in practice?

Superannuation mandates employers to contribute a minimum of 11.5% of your pre-tax income into your choice superannuation account. This is scheduled to increase to 12% on 1 July 2025.

Your super fund invests and manages this money in various assets for employees until they retire. Employees can also voluntarily put their contributions into their super to boost it. Funds sent into their superannuation account stay there until retirement or when they get to their preservation age.

Employees who are yet to reach their preservation age and need to retire unexpectedly can access their super real in situations such as:

• Severe financial hardship
• Terminal medical condition
• First Home Super Save Scheme
• Under compassionate grounds
• Temporary residents leaving Australia

See also: How Global Hiring Drives Australia’s Competitive Edge

Why is superannuation important for employees and employers?

Superannuation ensures employees have a financial safety net upon their retirement. This program helps employees who might be struggling to save for the future, do so actively and consistently. It also reduces reliance on public-funded pensions and gives them other perks such as tax advantages, insurance options, and investment growth opportunities.

Employers are required under federal law to pay superannuation contributions on behalf of their employees to approved super funds. They are mandated to make a minimum rate of contribution which is also known as the superannuation guarantee rate. These contributions must also be made quarterly.

Aside from being a federal mandate, contributing to the superannuation of your employees shows you’re committed to their long-term welfare. Also, offering great superannuation packages is a great way to attract top talent to your company.

What are the legal obligations of employers regarding superannuation?

Under the Superannuation Guarantee (Administration) Act 1992, an employer is mandated to:

• Pay superannuation for all employees
• Contribute to their preferred super funds if available
• Pay the contributions by the quarterly cut-off dates:
  • 28 October
  • 28 January
  • 28 April
  • 28 July
• Provide employees with the option to choose their superannuation fund unless they are not eligible
• Keep accurate records of superannuation payments and provide information to employees, such as through payslips or annual summaries
• Employers must pay the minimum superannuation you must pay for each eligible employee is 11.5% of their ordinary time earnings

Failure to meet these obligations can result in penalties, fines, and damage to the employer’s reputation.

See also: What is Single Touch Payroll in Australia?

Can employees choose their superannuation fund?

Some employees have the right to choose where they want their employers to pay their superannuation fund. However, not all employees are eligible to choose their super funds.

Employees who can choose their fund, can do this by filling out a Superannuation standard choic” form that is provided by the employers or get it directly online. This form allows employees to nominate their preferred funds. In a case where an employee chooses to not select a fund, employers can contribute to a default superannuation fund.

While employees can choose their fund for super guarantee, not all employees are eligible for this. Here’s a quick list of employees who can’t choose their funds for super guarantee:

• Your super is paid under a state-aware or registered agreement
• Your super is paid under certain workplace agreements made before 1, January 2021 that require super contributions, including some Australian workplace agreements
• You’re a federal or state public sector employee
• You’re in a particular type of defined benefit fund or have already reached a certain level of benefit in that super fund

What happens if an employer does not pay superannuation?

If an employer fails to pay superannuation, they may face serious consequences, including:

• Penalties and fines imposed by the Australian Taxation Office (ATO)
• Legal action by employees or authorities
• Obligations to pay interest and administrative fees on unpaid superannuation amounts
• Damage to the company’s reputation and employee trust

How is superannuation calculated?

Superannuation is calculated as a percentage of an employee’s ordinary time earnings (OTE), which includes wages, salaries, bonuses, and commissions.

For example, if an employee earns $90,000 annually, with a superannuation guarantee rate of 11%, the employer must contribute $9,900 to the employee’s super fund for the year.

What role does superannuation play in global hiring and remote work?

Superannuation is one of the major factors to consider for global hiring and remote work, especially for employers new to Australia. It dictates how companies should manage employees' benefits while complying with local laws.

When hiring internationally, you should:

• Understand the retirement saving laws in an employee's country of residence
• Determine whether they are obligated to pay into a local retirement fund or adhere to superannuation laws in the employer’s country
• Factor in superannuation—or the local equivalent—as part of the employee’s total compensation package

For remote employees, particularly those working across borders, clear communication about retirement benefits is essential to ensure transparency and compliance.

What are the tax benefits of superannuation?

Superannuation often comes with tax advantages, making it a cost-effective way to save for retirement. For example:

• Employer contributions are usually taxed at a concessional rate of 15%. This is less than the income tax rate
• Employees can make voluntary contributions from their before-tax income and into their super. This reduces their taxable income
• Employees can make after-tax contributions which they can claim a tax deduction in their tax return
• Investment earnings in your superannuation account are only taxed at 15%
• Transfer to or from other super funds are not taxed
• Withdrawing if you are 60 or older is tax-free. If you are under 60, you will pay 22% tax on any lump sum payments

How can employees maximize their superannuation savings?

Employees can maximize their superannuation savings through several strategies:

• Making voluntary contributions: Employees can contribute extra money from their pre-tax (salary sacrificing) or post-tax income
• Choosing an appropriate investment strategy: Employees should align their investment choices with their risk tolerance and retirement goals
• Monitoring their superannuation fund: Regularly reviewing fund performance, fees, and insurance options ensures the fund meets their needs

How does superannuation impact HR management?

In HR management, superannuation plays a key role in payroll, compliance, and employee benefits administration. HR professionals are responsible for:

• Ensuring superannuation contributions are processed accurately and on time
• Educating employees about their superannuation options, including how to select a fund and make voluntary contributions
• Staying up to date with changes in superannuation laws, rates, and regulations
• Incorporating superannuation into total rewards strategies to attract and retain talent

By managing superannuation effectively, HR can help foster financial well-being among employees and maintain legal compliance.

What are the common challenges associated with superannuation?

Common challenges with superannuation include:

• Compliance complexity: Employers must navigate varying laws and rates across regions, especially when managing a global team
• Lack of employee understanding: Many employees are unaware of how superannuation works or how to optimize their savings
• Administrative burden: Accurate calculation, timely contributions, record-keeping, streamlining the payroll process, and reducing payroll costs can be time-consuming for HR and payroll teams
• Unpaid superannuation: Employers may unintentionally underpay super due to errors in payroll systems or misunderstanding regulations which can attract penalties

Stay compliant with superannuation using Deel

Staying updated with pension and employment laws in Australia is important for HR and payroll teams who want to hire and pay employees in Australia.

With Deel, you can minimize payroll HR and compliance risks while focusing on growing your business. Deel’s services include:

• Expert payroll administration
• Advanced HR and benefits compliance
• Training, HR policies, and on-demand HR support
• Payroll processing in accordance with local regulations

Book a demo to explore Deel’s platform and speak with an expert.