Australia: ATO to ‘crack down’ on employers not paying the correct super

The Government has announced a further package of superannuation reforms to address concerns that employers may not be complying with their superannuation guarantee (SG) obligations.

The proposed reforms:

• suggest that the ATO will be granted additional powers to ensure that employers are contributing the correct amount of superannuation contributions for eligible employees; and
• impose additional reporting obligations on trustees of superannuation funds and employers.

Our current superannuation system

The SG legislation is administered by the Australian Tax Office (ATO) and requires, subject to certain exclusions, that employers make SG contributions for their workers who are ‘employees’ under the common law meaning, or deemed to be ‘employees’ for the purposes of the legislation.  Generally speaking, the required minimum SG contribution is 9.5% of an employee’s ordinary time earnings per quarter. This percentage has been increasing and will continue to gradually increase to 12% by 1 July 2025.

An employer must have made the minimum SG contributions required to an employee’s superannuation fund by the 28^th day of the end of each quarter to avoid incurring an SG charge.  SG is administered on a self-assessment basis which requires an employer to lodge a statement with the ATO if it has not made the required SG contributions for a quarter, and to pay the SG charge. Where the employer fails to do so, the ATO may make a default assessment of an employer’s SG shortfall and of the SG charge payable.  The ATO receives reports from superannuation funds on an annual basis, in respect of the contributions received for each member during the financial year.

In respect of unpaid SG liabilities on and from the June 2012 quarter, the ATO may also take action directly against the directors of an employer that has failed to comply with its SG obligations by issuing a director penalty notice making the director personally liable.

Reforms announced

Due to the self-administrative nature of the current system, there are concerns that many employers do not make the correct SG contributions.

The new reforms were announced in a Government media release on 29 August 2017.  When announcing the changes, the Honourable Kelly O’Dwyer MP (Minister for Revenue and Financial Services) indicated that the reforms are designed to ‘safeguard and modernise’ SG and crack down on employers who deliberately do not pay their workers’ SG entitlements.

No draft legislation has been presented but the media release reveals that the package will include measures to:

1. Require superannuation funds to report contributions received more frequently to the ATO. Contributions will have to be reported at least monthly (as opposed to the current annual requirement). This will enable the ATO to identify non-compliance and take prompt action.
2. Introduce Single Touch Payroll (STP). STP is a reporting change for employers with 20 or more employees. The requirement to report salaries and wages, PAYG withholding and super information direct to the ATO will be introduced gradually from 1 July 2018, with smaller employers coming on board from 1 July 2019. STP is intended to reduce the regulatory burden on business and transform compliance by aligning payroll functions with regular reporting of taxation and superannuation obligations;
3. Improve the effectiveness of the ATO’s recovery powers. This will include strengthening director penalty notices and the use of security bonds for high-risk employers to ensure that unpaid superannuation is better collected by the ATO and paid to employees’ super accounts.
4. Give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay superannuation guarantee liabilities.

Next steps

We will keep you informed when further announcements are made and the draft legislation is published.

For more information on this topic please contact our superannuation team: