‘Race-to-the-bottom employer’: Superannuation cut for hundreds of Victorian public servants

Hundreds of Victorian public servants face potential losses of several thousand dollars annually in superannuation contributions following a controversial policy shift by the state government. The change, affecting workers at the Department of Transport and Planning and the Suburban Rail Loop Authority, alters how superannuation is calculated for those who salary sacrifice portions of their income into employee benefits like car leases. This adjustment has sparked criticism from both employees and industry experts, who argue it represents a misinterpretation of recent federal legislation and creates inequities within the public sector. The policy change was implemented last month and was driven by the Department of Government Services (DGS), which oversees the payroll system for parts of the Victorian public service. Under the new arrangement, superannuation contributions are now calculated based on post-salary sacrifice earnings rather than pre-sacrifice levels. An internal email sent to staff ahead of the first pay day of the financial year explained that this shift aligns with the federal government's Payday Super law, which mandates that employers must pay superannuation every pay cycle. According to the email, this means the amount of earnings subject to the 12% employer super contribution will be reduced compared to previous practices. For example, an employee earning $100,000 per year who salary sacrifices $500 each fortnight into a novated lease would see their annual superannuation contributions drop by approximately $1,560. Employee payslips reviewed by The Age confirmed that superannuation payments were indeed lower after the change took effect. However, the Australian Taxation Office (ATO) clarified that the Payday Super law does not alter how salary sacrifice impacts super contributions. An ATO spokesperson stated that the treatment of salary sacrifice to other employee benefits, such as novated leases, has remained unchanged and continues to be at the employer’s discretion. Despite these clarifications, affected employees expressed frustration over the change, particularly because it appears to create disparities across different departments. A source from the Transport and Planning Department noted that while some departments using DGS’s payroll system now receive lower superannuation contributions, others not utilizing the platform continue to benefit from the old method. This inconsistency has led to accusations that the government is treating its workforce unequally, with one anonymous employee describing the situation as emblematic of a “race-to-the-bottom employer.” Theo Marinis, a financial strategist and chief economist at Coveo Partners, commented on the broader implications of the policy shift. He suggested that while larger employers typically avoid unscrupulous behavior, the situation in Victoria indicates that even government departments might be prioritizing cost-cutting measures. Marinis speculated that the change could be motivated by administrative convenience, allowing DGS to streamline reporting processes to the ATO. He also noted that the state’s financial challenges may have played a role in the decision, with officials potentially attempting to reclaim additional revenue. In response to the controversy, a DGS spokesperson emphasized the agency’s commitment to ensuring all employees receive what they are entitled to under the law. They acknowledged the need to seek further legal guidance on how recent federal reforms might affect superannuation payments within the Victorian Public Service. The spokesperson indicated that any necessary adjustments would be made once this review is complete. Meanwhile, the ongoing debate highlights growing concerns about transparency and fairness in public sector employment practices.