Australia: Wage theft and non-compliance of the Superannuation Guarantee

The Senate Economics References Committee has released its report 'Superbad – Wage theft and non-compliance of the Superannuation Guarantee' following concerns raised by Industry Super Australia about considerable underpayment of mandated Superannuation Guarantee contributions.

As the Committee’s invented word ‘Superbad’ suggests, the Committee is deeply concerned about this issue. Its recommendations are underpinned by observations that SG non-compliance:

1. is a form of wage theft (on the basis that SG contributions represent a form of deferred salary);
2. gives non-complying employers an unfair competitive advantage in the market over complying employers; and
3. ultimately, has significant impacts on government expenditure.

Following the establishment in December 2016 of a multi-agency working group to investigate and develop practical recommendations to deal with SG non-compliance, the Report’s release keeps these issue in the spotlight.

A threshold issue is the lack of consensus on the magnitude of SG underpayment. Industry Super Australia (which is the lobbying body for industry superannuation funds) estimates underpayment was $5.6 billion in 2013-14. The ATO in response says that the $5.6 billion number “substantially overstates” the problem but without giving its own figure. The Committee said all submissions at least acknowledged the problem was significant. The Committee has asked the ATO to put together reliable data and publish an annual ‘SG gap’ figure to track the magnitude of SG underpayment.

 The Report makes 32 recommendations, including proposed amendments to the superannuation legislation, changes to ATO and ASIC practices, and involvement of the Fair Work Ombudsman (FWO). Highlighted recommendations are:

• Removing the $450 monthly threshold on SG eligibility. The Committee identifies the $450 threshold as one of the key legal reasons behind SG non-payment. In the Committee’s view, technological advances have lowered the administrative burden of managing small SG payments.
• Salary sacrificing. For some time some employers have used voluntary employee contributions under salary sacrificing arrangements as a means of meeting mandated SG contributions. The Committee recommends legislative change so voluntary contributions are additional to, not substituted for, mandated employer SG contributions.
• More frequent payments. The Committee considers quarterly payment of SG contributions outdated in the context of technological solutions to payroll issues and recommended increasing the frequency of SG payments to monthly, or to align with regular pay cycles, to allow earlier detection of non-compliance.
• Reducing the complexity of calculating an employee’s SG entitlement. The Committee recognised the difficulty experienced by employers in determining the correct amount of SG to pay employees and recommended the Government review the definition of ‘Ordinary Time Earnings’ to provide clarity on the payments that should be included to calculate employee SG entitlements.
• Improving prospects of recovering unpaid SG entitlement. The Report proposes expanding liability to franchisors and holding companies of corporate entities (similar to those contained in the Government’s Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 that is currently before Parliament), allowing employees, their unions and superannuation funds to take legal action against employers for unpaid SG, and allow SG entitlements owed by insolvent employers to be recovered from the Fair Entitlements Guarantee scheme.
• Strengthening enforcement action. The Committee viewed ATO enforcement of unpaid SG as inadequate and recommended more enforcement resources, more data sharing between government agencies and superannuation funds to allow greater detection of SG non-compliance and the transfer of some enforcement responsibilities from the ATO to the FWO as it is better placed to assist employees.

The Liberal member of the Committee issued a dissenting report. Whether the Committee’s ‘Superbad’ recommendations get are viewing should perhaps be viewed in that light.