The latest estimates from the Australian Taxation Office reveal that workers are owed a staggering $3.6 billion in superannuation guarantees—a figure that both the government and regulators are keen on addressing.
At first glance, employer superannuation guarantee (SG) compliance seems positive, with over 94%—equivalent to more than $71 billion—collected in 2020-21 without regulatory intervention. The net SG gap has also decreased from 5.7% in 2015-16 to 5.1% in 2020-21, partly influenced by COVID-19 stimulus measures that led to increased voluntary contributions.
Despite these improvements, the 5.1% net gap translates to a substantial $3.6 billion shortfall in payments that should be in the superannuation funds of workers. Hidden within this amount is $1.8 billion from concealed wages, including off-the-books cash transactions, undisclosed wages, and non-payment of super due to employee misclassification as contractors.
Additionally, as of February 28, 2022, $1.1 billion of SG charge debt is marked for insolvency, making recovery unlikely. Quarterly reporting allows debt to escalate before the Australian Taxation Office (ATO) can identify and address an emerging problem.
Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will play a more significant role in addressing these issues.
Single touch payroll matched to super fund data
Single touch payroll (STP), the reporting mechanism for employer payments, provides a comprehensive, granular level of near-real-time data to regulators on income paid to employees. The ATO is now matching STP data with the information reported by superannuation funds to identify late payments and instances of under or incorrect reporting.
Late payment of quarterly superannuation guarantees is emerging as an area of concern, with some employers missing payment deadlines due to cash flow difficulties or technical issues. Super guarantee laws do not tolerate even slight delays; contributions are either on time, or they are not.
When SG is paid late
If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC is particularly painful for employers as it includes the employee’s superannuation guarantee shortfall amount, 10% interest per annum on the SG owing for the quarter, and an administration fee of $20 for each employee with a shortfall per quarter.
Unlike normal SG contributions, SGC amounts are not deductible, even if the outstanding amount is paid. The calculation for SGC is different from calculating SG, as it is based on the employee’s salary or wages rather than their ordinary time earnings (OTE).
It’s crucial that employers who have made late SG payments lodge a superannuation guarantee statement quickly, as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement or failing to provide a statement during an audit, of up to 200% of the SG charge. Where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount.
The danger of misclassifying contractors
Many business owners assume that hiring independent contractors relieves them of responsibilities such as PAYG withholding, superannuation guarantee, payroll tax, and workers’ compensation obligations. However, each set of rules operates slightly differently, and genuine contractors can, in some cases, be treated as employees. Employers face significant penalties for misclassification.
A genuine independent contractor providing personal services will typically be autonomous in decision-making, financially self-reliant, and pursuing profit rather than simply accepting payment for time, skill, and effort provided.
‘Payday’ super from 1 July 2026
The Government plans to introduce laws requiring employers to pay SG at the same or similar time as employee salary and wages, known as “payday” super. The aim is to increase the frequency of SG contributions, benefiting employees and minimising the opportunity for SG liabilities to accumulate. Originally announced in the 2023-24 Federal Budget, the reforms are scheduled to take effect from July 1, 2026.
What is proposed?
The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday.’ The SGC would also be updated with interest accruing on late payments from ‘payday.’
Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly.
We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do.
Up to 10 years in prison for deliberate ‘wage theft’
Legislation currently being debated in Parliament will introduce a new criminal offense for intentional “wage theft.” If enacted, in addition to the criminal offense, a fine will apply. The fine is three times the underpayment and:
- For individuals – 5,000 penalty units (currently $1,565,000).
- For businesses – 25,000 penalty units (currently $7,825,000).
The reforms are not intended to capture unintentional mistakes, and a compliance ‘safe harbour’ will be introduced by the Fair Work Ombudsman for small businesses. In addition to addressing wage theft, the Bill also seeks to replace the definition of a ‘casual employee’ and create a pathway to permanent work, change the test for ‘sham contracting’ from a test of ‘recklessness’ to ‘reasonableness,’ bolster the powers of the Fair Work Commission, including the ability to set minimum standards for ‘employee-like’ workers, and introduce a new offense of “industrial manslaughter” in the Work Health and Safety Act 2011.
The Bill introducing the reforms has been referred to the Senate Education and Employment Legislation Committee, which is scheduled to report back in February 2024.
“Wage-theft” is illegal in Queensland, South Australia, and Victoria under State laws. While the Federal Bill is not intended to interfere with State legislation, the impact of the interaction between the existing State legislation and the proposed Federal reforms is unclear. Over the last two years, the Fair Work Ombudsman has recovered over $1 billion in back-payments, mostly from large corporates and universities. Court-ordered penalties of $6.4 million were paid by employers across this same time period.