Absorbing Superannuation Guarantee Increases: Employer Options In Australia

Superannuation Guarantee (SG) increases are phasing in, and many employers are asking a practical question: can we absorb the extra super into existing salaries, or do we need to lift overall remuneration?

The short answer is: it depends on how your employment contracts are written, what industrial instrument applies (if any), and how you pay your people today.

In this guide, we’ll break down what’s changing with SG, what it means for your payroll, when absorption is possible, and the legal steps to stay compliant and fair. We’ll also share practical options you can use to manage rising employment costs without breaching workplace laws or damaging trust with your team.

What Is Changing With The Superannuation Guarantee?

The Superannuation Guarantee is the minimum percentage of an employee’s Ordinary Time Earnings (OTE) that employers must contribute to superannuation.

The SG rate is increasing on a planned schedule:

• 11.0% for 2023-24
• 11.5% for 2024-25
• 12.0% from 1 July 2025 onwards

Getting OTE right is essential, because the percentage is applied to that base. If you’re unsure what counts as OTE (and what doesn’t), it’s worth reviewing this in detail via an Ordinary Time Earnings (OTE) explained guide before you make any pay structure changes.

Can You Absorb SG Increases Into Salary?

Sometimes yes-but only if your contracts, policies and any applicable award or enterprise agreement permit it. In Australia, there are two common ways remuneration is framed:

1) Total Remuneration (Salary Package) Clauses

Under a total remuneration or “package inclusive of super” model, the contract states the employee’s remuneration is a single figure that already includes superannuation. If that’s the case, when SG goes up you can generally increase the super component and reduce the cash component so that the total package stays the same.

Key conditions for this to be lawful and workable:

• Your contract must clearly say remuneration is “inclusive of superannuation” or use a similar package construct.
• The resulting cash salary must not drop below any minimum rates in a modern award or enterprise agreement, and you must still meet all other minimum entitlements.
• Be transparent with staff-explain the change and show the before/after breakdown.

If you use package structures, make sure your wording aligns with your pay strategy. A quick refresher on how packages are documented can help-see how fixed remuneration is typically framed in Australia.

2) Base Salary + Super Clauses

Other contracts set a “base salary plus superannuation” amount. In this model, the super is on top of the cash salary. When SG increases, the total cost of employment goes up unless you renegotiate the base salary (which you generally can’t do unilaterally).

If you want to absorb the increase in this situation, you’ll usually need employee agreement to vary the contract and move to a package structure. Even with consent, you must still ensure minimum earnings obligations are satisfied under any applicable award.

3) Set-Off Provisions And Above-Award Payments

Some employers pay above-award rates and rely on “set-off” provisions to meet multiple entitlements (penalties, allowances etc.) within a higher flat rate. Set-off clauses need to be drafted carefully to be effective. They don’t automatically let you absorb SG increases, but they can help ensure your overall pay arrangements still meet minimums after changes. It’s wise to review your wording against best practice guidance on set-off clauses in employment contracts before relying on them.

What If You Pay Commissions Or Bonuses?

Make sure you understand when super applies to incentive pay. Some bonuses and commissions may form part of OTE (meaning SG applies), while others do not. The key is whether payments are “ordinary time” earnings and whether a bonus is discretionary. For a deeper look at obligations, see superannuation on bonuses and how discretionary vs non-discretionary payments are treated.

Employer Options To Manage SG Increases (Without Breaching The Law)

There’s no one-size-fits-all approach. Here are practical levers employers use-often in combination-to manage rising SG while staying compliant and keeping team morale intact.

Option A: Use (Or Move To) Total Remuneration Contracts

If your team is already on packaged remuneration, you can generally absorb the SG increase automatically (subject to award/compliance checks). If they’re on base + super, consider a contract variation (with employee agreement) to shift to a package. This maintains your total employment cost per person, but note it reduces cash-in-hand unless you increase the package to offset the change.

Option B: Maintain Base Salaries, Increase Total Cost

Many employers simply accept the higher SG as a cost of doing business and keep base salaries steady. This can be the simplest path where market competition for talent is strong, or where contracts don’t allow absorption.

Option C: Rebalance Variable Pay

Where contracts permit (and with employee consultation), you might rebalance variable components (e.g. reduce discretionary bonuses) to offset SG increases. Take care to distinguish between discretionary and guaranteed components and to confirm the super treatment for each.

Option D: Review Allowances, Loadings And Overtime Settings

If you pay above-award rates or flat rates, check whether you’re unintentionally overpaying for certain hours or allowances. A compliant recalibration can sometimes fund part of the SG increase without reducing take-home pay.

Option E: Clarify OTE And Payroll Classifications

Double-check what you’re treating as OTE in payroll. Misclassifying payments as OTE (or missing items that should be OTE) can inflate costs or create underpayment risk. Start with your internal OTE rules and compare them to the law using an OTE checklist.

Option F: Employee Share Or Equity Plans

For some roles (especially leadership and growth-focused teams), you might shift part of future remuneration growth toward equity-based incentives rather than cash. Equity isn’t a substitute for minimum entitlements, but it can help align interests while managing cash costs. If exploring this, consider an Employee Share Option Plan alongside market-aligned salaries.

Option G: Workforce And Roster Optimisation

Small operational changes-like rostering to reduce overtime, or improving role design and productivity-can soften the impact of rising on-costs over the year without altering pay packets.

Legal And Award Compliance You Must Check

Before you change anything, step through these safeguards.

1) Contracts And Industrial Instruments

• Contract wording: Does the contract say “total remuneration (inclusive of super)” or “base salary plus super”?
• Award or enterprise agreement coverage: If a modern award applies, confirm the minimum rates and whether your changes maintain compliance. A fresh look at modern awards and award compliance can prevent underpayments.
• Set-off clauses: If you rely on them, make sure they’re drafted correctly and still effective after the change.

2) Variation Process And Employee Consent

Generally, you can’t unilaterally reduce someone’s cash salary. If you need to move from “base + super” to “package inclusive of super,” you’ll need agreement, a clear written variation, and enough lead time for consultation. For process, timing and risk, see this overview of changing employment contracts.

3) Minimum Earnings And Market Pay

Even with packages, the net cash pay should still satisfy minimum entitlements (including award rates, allowances and penalties if applicable). If you’re already paying comfortably above minimums, remember that above-award wages can provide a buffer-but you still need to check how any change interacts with your instrument and roster patterns.

4) OTE, Bonuses And Termination Payments

Ensure you’re applying SG to the correct OTE components, and understand how incentive plans are categorised. Also check edge cases like final pays-see when you must pay superannuation on termination payments so you don’t create compliance gaps.

5) Communication, Morale And Retention

Transparent communication is crucial. Even lawful absorption can feel like a pay cut to staff if it reduces take-home. A clear explanation of the law, your contract model, and what changes (with worked pay examples) helps maintain trust.

What Should Your Employment Documents Say?

The most sustainable approach is to make your documents say exactly what you intend-and ensure they remain compliant as the law changes.

• Employment Contract: If you prefer total remuneration, the contract should state that salaries are inclusive of super and outline how changes in SG are handled. If you use base + super, say so clearly and specify the superannuation fund and contribution timing.
• Workplace Policy: A payroll or remuneration policy can spell out how SG increases are treated, when reviews occur, and how cash vs super breakdowns are communicated.
• Incentive Plan Rules: Make it clear which payments are discretionary, the performance criteria, and whether they are intended to be OTE. Align wording with your payroll OTE settings.
• Position Descriptions: Keeping PDS up to date supports correct award classification and pay accuracy.
• Staff Handbook: Centralise your pay cycle, super timing, and remuneration principles so everyone knows what to expect each 1 July.
• Employee Share Option Plan: If you’re adding equity to your remuneration mix, put a compliant plan in place and cross-reference it in contracts or offer letters.

If you’re refreshing contracts, it also helps to review adjacent terms at the same time (confidentiality, IP, restraint, flexibility, set-off provisions and dispute resolution) so your entire employment framework is consistent.

Practical Timeline: Getting Ready For 1 July

Here’s a simple roadmap you can follow ahead of the next SG uplift.

1. Audit Your Contracts
   Map who is on “package inclusive of super” and who is on “base salary + super.” Note any award coverage and minimum rates by classification.
2. Confirm Your OTE Treatment
   Align your payroll settings with the law and your incentive plans. Recheck OTE categories against an OTE reference so contributions aren’t over- or under-calculated.
3. Choose Your Strategy
   Decide whether you’ll absorb the increase (package model), increase total cost (base + super), or use a mixed approach. Sense-check against awards and retention risks.
4. Prepare Variations (If Needed)
   If moving employees from base + super to package, prepare written variations, allocate reasonable consultation time, and have managers ready to explain impacts with clear examples.
5. Update Payroll And Letters
   Update your HRIS/payroll settings for the new SG rate, adjust salary breakdowns where applicable, and issue remuneration letters showing the cash/super split.
6. Communicate Early
   Share an all-staff note explaining the SG change, what it means at your company, and contact points for questions. Consider a short FAQ for transparency.
7. Monitor And Reconcile
   In the first quarter after the change, spot-check super calculations, contribution timing, and payslip breakdowns to confirm everything is landing correctly.

Common Pitfalls To Avoid

• Assuming absorption is always permitted. It depends on your contract wording and any applicable award or agreement.
• Reducing cash pay below minimums. Even with packages, you must still meet minimum rates and entitlements.
• Misclassifying OTE. Paying (or not paying) SG on the wrong components creates costly remediation work.
• Unilateral changes without consent. Moving a team from base + super to a package model usually requires agreement and a written variation.
• Forgetting incentives and allowances. Ensure your bonus and allowance rules align with how payroll treats OTE, and be clear about discretionary vs guaranteed components.
• Inconsistent documents. Contract, policy and incentive plan wording should point in the same direction to avoid disputes.

Key Takeaways

• Whether you can absorb SG increases depends on your remuneration model-packages inclusive of super usually allow it; base + super contracts generally do not without a variation.
• Always check award or enterprise agreement coverage and ensure any change keeps employees above minimum entitlements.
• Get OTE classifications right so SG is calculated correctly on salaries, allowances and incentives where required.
• If you need to change contract structures, obtain employee consent and document the variation clearly before implementation.
• Strong, consistent documentation-your Employment Contracts, Workplace Policies and incentive rules-makes compliance simpler and reduces disputes.
• Plan ahead of 1 July: audit, decide your strategy, update payroll settings, communicate early, and monitor contributions in the following quarter.

If you’d like a consultation on handling Superannuation Guarantee increases and updating your employment documents, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.