457/482/494 visa sponsor obligations: Beware the mandatory increase to superannuation on 1 July 2021

With the beginning of the new financial year, mandatory superannuation payments increased from 9.5 per cent to 10 per cent on 1 July 2021. Standard business sponsors and those party to a labour agreement should be reviewing their employment arrangements with any primary subclass 457 – Temporary Work (Skilled) visa, subclass 482 - Temporary Skill Shortage visa or subclass 494 – Skilled Employer Sponsored Regional (Provisional) visa holders and in some cases former visa holders. This is because not doing so could see them inadvertently breaching their sponsor obligation to ensure equivalent terms and conditions of employment.

There are many sponsor obligations that standard business sponsors and labour agreement holders must comply with or risk the prospect of being sanctioned. While all sponsor obligations are important, one that is likely to draw the particular ire of inspectors is regulations 2.79 and 2.79A of the Migration Regulations 1994 (Cth).

Regulations 2.79 applies to sponsored (primary) 457 and 482 visa holders and regulation 2.79A applies to sponsored 494 visa holders. These regulations also apply to former sponsored 457, 482, and 494 visa holders provided this was the last substantive visa they held and they still work for their sponsor. They do not apply to any sponsored worker whose earnings are above the current AUD 250 000 threshold nor any secondary 457, 482 or 494 visa holders.

There are two limbs to this obligation. They require that a standard business sponsor or a person, which includes companies and other entities, who are party to a labour agreement, also known as a work agreement, must:

• ensure equivalent terms and conditions of employment or annual earnings for any primary 457, 482, or 494 visa holder, and

• ensure earnings are not less than what was listed in the approved nomination application.

While there is a slight distinction for 457 visa holders depending on whether the nomination application was lodged before 18 March 2018 or on or after 18 March 2018, the requirements are very similar. This distinction was made when the old market salary rate requirement was replaced with a defined Annual Market Salary Rate (AMSR) in the Regulations. The AMSR benchmarks the market rate to a full-time yearly rate of earnings instead of the previously vaguer terms and conditions of employment.

Equivalent terms and conditions or annual earnings

The obligation requires employers to ensure the equivalent terms and conditions for any 457 visa holder where the related 457 nomination was lodged before 18 March 2018 are no less favourable or annual earnings are no less than the AMSR for any 457, 482 or 494 holder where the related nomination was lodged from 18 March 2018. This is essentially a comparison of earnings in both cases. Earnings is based on the definition under section 332 of the Fair Work Act 2009 (Cth) and does not include any superannuation or earnings that are not guaranteed, such as unforeseen overtime and bonuses.

In both the former and current case, the sponsored worker’s terms and conditions (or earnings) of their employment are no less favourable than those provide to, or would be provided to, an equivalent Australian citizen or permanent resident, also known as an Australian worker, performing equivalent work in the person’s workplace at the same location.

An equivalent work can be distinguished from the visa holder if there is a disparity of experience and an associated difference in earnings. This would apply especially with professional occupations and where common law contracts are used.

In the pre-18 March 2018 market salary rate, even if the terms and condition are improved for the sponsored worker, they may still be breaching the requirements if they are not at least equivalent in earnings to an Australian worker.

In both situations, however, the terms and conditions or annual earnings must also be no less favourable than that was approved at the nomination stage. This may be calculated on an hourly basis, meaning that even if the sponsored worker is paid more in total because of more hours worked, the obligation may still be breached if the hourly rate is less than what was listed in the nomination application.

This is where the increase to superannuation may prove an issue.

Superannuation increase on 1 July 2021

For most employees in Australia, their superannuation payments will increase on 1 July 2021 from 9.5 to 10 per cent. Some will not as their salary will be above the maximum super contribution base, which is likely to apply to workers whose earnings are above the threshold for this sponsor obligation to apply.

The key here though is that where superannuation is included in a total package, earnings will decrease. This is because the extra 5 per cent will come from the employee’s existing package and they will not be given a pay rise. These employees will obviously be receiving less take home pay than they had last financial year. This circumstance has been reported for some of Australia’s largest companies, and demonstrates that despite the best intentions of government policy, there is no doubt a cost that someone must bear for mandatory increases to pay.

In these situations, where the earnings have decreased to below the amount listed in the nomination application, the sponsor will be in breach of Regulations 2.79 or 2.79A.

The only time where this limb is not breached is if the 457, 482, or 494 visa holders had received a sufficient increase in their salary so that any decrease in earnings was still above the nominated earnings in their application.

A simple example:

John was nominated for a 482 visa on 1 May 2021 with annual earnings of $90,000, which consisted entirely of wages. With mandatory superannuation of 9.5 per cent before 1 July 2021, his total remuneration was $98,550.

On 1 July 2021, his total remuneration remained the same and his superannuation increased from $8,500 to $9,855. However, his annual earnings decreased to $88,695, which is less than the salary declared in his nomination application.

Even if there was an equivalent worker with the same terms and conditions (pre-18 March 2018) or on the same annual earnings (from 18 March 2018), John’s employer is still in breach of Reg 2.79 or 2.79A.

It is hopeful employers will be mindful of this potential pitfall and will continue to be with the scheduled successive years of superannuation increases in the years to come.