New superannuation contributions cap: An employers guide

Published

Dec 5, 2024

Author

As an employer, it's important to stay within the limitations of the superannuation contributions cap. Exceeding it could cause tax penalties for your employees from the Australian Taxation Office (ATO).

In July 2024, key changes to both concessional and non-concessional contribution caps came into effect. Concessional contributions, such as employer and salary-sacrificed amounts, and non-concessional (after-tax) contributions, now have updated limits. As a business owner, it's vital to track and respond to these changes. This can help you maintain compliance and safeguard your employees' financial well-being.

In this article, we explain the changes to the super contributions cap and what employers need to know and do next. We also explain how Rippling can help you manage these updates effortlessly.

Please note, the information contained in this article is accurate as of 5/12/2024. For the most current information, please refer to the ATO.

What’s changed with the superannuation contributions cap

As of 1 July 2024, the Australian government increased both the concessional contribution cap and non-concessional super contributions cap to align with wage growth and inflation. Below, you can find the details of the changes and how the new caps compare to the previous limits:

Concessional contributions cap

Before 1 July 2024: The concessional contribution cap was $27,500 per financial year. Employers' contributions, including compulsory super contributions and any salary-sacrificed amounts counted towards this cap. Employees also had the option to claim a tax deduction for personal concessional contributions made within this limit. Exceeding this limit, however, resulted in the excess amount being taxed at the employees' income tax rate. It also meant facing an excess concessional contribution charge.
From 1 July 2024: The concessional contributions cap is now $30,000 per financial year. This means employers and employees can make larger before tax contributions. Employees can still claim an income tax deduction for personal concessional contributions within the new cap. Any amount contributed in excess of the cap is still subject to taxation at the employee’s income tax rate, along with interest penalties on the excess.

Non-concessional contributions cap

Before 1 July 2024: The non-concessional contributions cap (after-tax contributions) was $110,000 per financial year. Employees could voluntarily contribute up to this amount from their post-tax income without triggering additional taxes. Going over this cap would incur a tax rate of 47% on the excess contributions.
From 1 July 2024: The non-concessional contributions cap is now $120,000 per financial year. This gives employees more flexibility in making voluntary contributions toward their superannuation. Exceeding the limits of this new cap will still result in the 47% tax penalty on the excess amount.

Key differences between concessional and non-concessional contributions

Concessional contributions are before tax contributions and are taxed at 15% when they enter the super fund, up to the cap. Concessional contributions that exceed the concessional cap are typically included in the employee’s taxable income and taxed at their marginal tax rate. Sometimes, employees may use their unused concessional cap from previous years to boost contributions without facing additional taxes.
Non-concessional contributions come from after-tax income and aren't taxed within the super fund. However, if the employee exceeds the non-concessional cap, the excess amount will be subject to taxation at 47%.

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What employers need to know

With new superannuation contribution caps in effect, employers must take proactive steps to comply with these changes. Below, you can find some of the suggested actions to take and the potential consequences of non-compliance. You'll also discover practical strategies for managing contributions under the new concessional and non-concessional caps.

Steps to ensure compliance with new caps

Custom payroll alerts and employee contributions overview: Aside from updating your payroll software with the new superannuation contribution caps, you can consider setting up custom alerts. These alerts can notify your HR or payroll team when employees are nearing their cap. Having a system like this in place can help prevent unintended breaches before they happen.
Dedicated superannuation audits: Conduct internal audits of employee superannuation contributions at least twice a year. This involves reviewing salary-sacrificed and employer contributions to ensure that no employee is at risk of exceeding the caps. It can also involve liaising with employees who contribute to multiple super funds, where mistakes are more likely to occur.

Penalties for non-compliance

It's employees that face the penalties for exceeding superannuation contribution caps. However, by practicing diligence in their compliance efforts, employers can avoid negative consequences for their staff. As mentioned, if employees exceed the concessional cap, they face taxation at their marginal tax rate on the excess, with a 15% tax offset. If they exceed the non-concessional cap, they face taxation at a 47% fixed rate on the excess.

For example, imagine an employee named Kaitlyn who has a salary-sacrifice arrangement in place. Because of a payroll miscalculation, her concessional contributions for the financial year exceed the cap by $2,500. As a result, Kaitlyn will now pay tax at her marginal tax rate (let’s say 37%) on that $2,500 excess, minus a 15% offset. This means an extra 22% tax on the excess amount. This translates to Kaitlyn paying an additional $550 in taxes. If she had exceeded the non-concessional cap, she would face a 47% tax on the excess, resulting in a $1,175 penalty.

Mismanaging superannuation contributions can erode trust between an employer and their employees. It can also lead to potential financial struggles for employees who may be subject to unanticipated tax liabilities as a result of their income tax assessment.

Practical tips for managing employee contributions

Automate contribution tracking: Use payroll software that offers a notification feature and automatic tracking. This can make simpler work of ensuring concessional and non-concessional contributions stay within the set limits.
Communicate regularly with employees: Periodically communicate with your employees about their superannuation contributions. This is especially important if they're making salary-sacrificed or voluntary, personal contributions. As they approach the cap, you can offer them reminders to help them prevent exceeding it.
Offer guidance on voluntary contributions: If employees choose to make voluntary non-concessional contributions, you can provide them with resources or advice. This can assist them in managing their contributions effectively to avoid penalties.
Review salary sacrifice arrangements: Halfway through the financial year, review salary-sacrifice arrangements and adjust them based on the employee’s year-to-date contributions. This avoids over-contributing in the second half of the financial year.

Stay one step ahead of the super contribution caps with Rippling

Managing superannuation contributions can be tricky, especially with changing caps and regulations. Rippling’s payroll system makes the process a lot simpler by automating superannuation calculations and tracking concessional and non-concessional contributions. With real-time monitoring, Rippling ensures your employees’ contributions stay within the legal limits. This means you can stay one step ahead in helping them avoid having to pay extra tax.

Rippling automatically updates superannuation rates and thresholds as they change. This makes it easier for your business to stay compliant with no need for manual adjustments. Ultimately, the platform takes the guesswork out of super management!

Confidently manage compliance with Rippling