Earlier this month, the Senate Economics References Committee (the Committee) released its report on non-compliance with superannuation guarantee legislation in Australia. The report, titled “Superbad – Wage theft and non-compliance of the Superannuation Guarantee”, documents the findings of the Committee’s inquiry and makes recommendations for changes to the law and initiatives run by government agencies to deal with non-payment of superannuation by employers.
How does the superannuation guarantee scheme work?
In a very general sense, an employer will become obligated to make superannuation contributions on behalf of an employee when the employee earns more than $450 per month (before tax).
Once an employee reaches the earnings threshold, their employer must make superannuation contributions on their behalf into a complying superannuation fund (chosen by the employee) at least on a quarterly basis. The rate of superannuation contribution is prescribed by the superannuation guarantee legislation and is currently 9.5% of the employee’s ordinary time earnings.
If an employer fails to make superannuation contributions on behalf of an employee, the employer will incur the superannuation guarantee charge. The charge is made up of three components: the superannuation the employee was entitled to, interest on that amount and an “administration fee” paid to the Australian Tax Office (ATO).
Why is non-compliance an issue?
The ATO has responsibility for pursuing non-compliant employers but predominantly relies on complaints from employees before taking action. This, together with other factors, has lead to employers not being chased for unpaid superannuation where employees are unaware of their entitlements or assume that their employer is doing the right thing.
Non-compliance with the superannuation guarantee has been an ongoing issue for the government and for employees for many years. Non-compliance means that employees have less in their superannuation funds for retirement and may rely on the government pension sooner. Late payment of superannuation can mean loss of investment earnings for employees too.
Non-compliance also means that employers face additional payments (in the form of interest and the “administration fees”) beyond simply paying the superannuation contributions they initially owed.
The Committee’s report cites research from Industry Super Australia indicating that in 2013/14, employers failed to pay a total of $5.6 billion in superannuation contributions, affecting the superannuation balances of 2.76 million employees.
Clearly, non-compliance with the superannuation guarantee legislation is a significant problem.
What does the Committee recommend?
The Committee makes more than 30 recommendations in its report, many of which would significantly impact employers on a day-to-day basis. Some of the more significant recommendations include:
- Removing the $450 monthly earnings threshold on superannuation contribution eligibility meaning that superannuation would be payable on all ordinary earnings.
- Amending the superannuation guarantee legislation to require contributions to be made at least monthly, and preferably in alignment with regular pay cycles, to reduce the administrative burden for employers of paying superannuation and wages separately.
- Amending the superannuation guarantee legislation to extend accessorial liability for non-compliance to corporate entities in the supply chain (eg. franchisors or holding companies), with a view to increasing compliance.
- The ATO developing more proactive initiatives such as incorporating random audits into is superannuation compliance activities.
- The government reviewing the current superannuation guarantee scheme with a view to increasing penalties for deliberate and repeated non-compliance by employers.
- The ATO reviewing its current compliance and recovery activities to ascertain what works and what doesn’t.
- The Fair Work Commission beginning to receive and act on complaints of non-compliance with superannuation guarantee legislation, rather than simply referring complaints to the ATO.
- The government investigating legislative amendments to strengthen the ATO’s powers in relation to unpaid superannuation recovery to stop company directors engaging in illegal phoenix activity to avoid their superannuation guarantee obligations.
None of the recommendations have been identified for adoption as yet, but some politicians have commented that several of the recommendations have merit and require further investigation.