- Is there a problem with the Superannuation Guarantee (SG) system?
- Who are the non-compliant employers?
- Chasing employers: What is the ATO required to do?
- Does the ATO have the resources it needs?
- Stamping out non-compliance: what is the ATO actually doing?
- Chasing the baddies: what about my employer?
- Why doesn’t the ATO get my super money for me?
- Industry fund members: another option for help
“The ATO is an absolute joke!! I worked for a sole trader for 5 years and was never paid any super, which I was entitled to … I approached the ATO, who established that he did owe me approximately $12,000 in super contributions, plus interest over five plus years. They spent three years ‘investigating’ the matter, only to tell me at the end that they could not recover any money … The ATO doesn’t want to know and absolutely refuse to assist me any further to recover the money.” SuperGuide reader
Here at SuperGuide this type of comment from readers, set out above, is not unusual. We regularly receive emails from readers concerned their employer has not paid their superannuation entitlements into their super fund, or wondering what they can do because their employer has gone broke. (See end of this article for list of SuperGuide articles explaining how to protect, and check on, your super entitlements.)
Is there a problem with the Superannuation Guarantee (SG) system?
Getting some employers to pay the correct amount of SG into their employees’ super fund account is certainly a hot topic at the moment. In December 2016, the Senate agreed its Economics References Committee should examine non-payment of the SG and report back in March 2017.
At the same time, a new report by Industry Super Australia in conjunction with one of the large industry funds, Cbus, estimated around 2.4 million (or 30% of all employees) missed out on a total of $3.6 billion in SG payments during the 2013/2014 financial year. This estimate included underpayment of SG for PAYG employees and sham contractors ($2.8 billion), together with unpaid super for workers employed in the cash economy ($800 million).
The ISA report found those employees most at risk of not having their SG contributions paid were younger, lower-income earners working in industries with high levels of casualisation and ‘sham contracting’, including the construction, cleaning and hospitality industries.
Another report the Senate review is likely to take a close look at is the findings of the June 2015 performance audit of the ATO’s effectiveness in promoting employer compliance with SG obligations, conducted by the Australian National Audit Office (ANAO). The ANAO audit found as many as 11% to 20% of employers were not making the correct super contributions for their employees, representing around $2.6 billion annually in unpaid super (click here to access the ANAO report).
Who are the non-compliant employers?
According to written comments provided by the ATO to SuperGuide, the vast majority of employers do the right thing when it comes to paying their SG obligations. The ATO states: “There is some degree of employer non-compliance in the system and the ATO treats non-compliance seriously. Employers that do not meet their obligations often do so for a range of reasons ranging from inadvertent mistakes to intentional avoidance.”
Both the ATO, and the ANAO report on the ATO’s performance, noted these non-compliant employers tended to be mostly small businesses or employers in industries where employees were often paid in cash or as contractors.
While the ATO may know the industries where these employers are, the ATO is uncertain about the true size of the so-called ‘superannuation gap’, or the difference between the SG contributions that are due, and those that are paid. The ATO is currently working on better measuring of employer non-compliance to accurately estimate this figure. Results from this review were expected in the ATO’s latest annual report (2015/2016 year), but did not appear. In December 2016, ATO deputy commissioner, Jeremy Hirschhorn, told a parliamentary committee the absence was due to “data issues”.
Whatever the correct figure for employer non-payment of SG contributions, it will definitely dwarf the paltry $373.3 million in SG entitlements the ATO reported as having recovered and distributed to individuals or super funds last financial year (in its 2015/16 Annual Report). Another $124.4 million of unpaid super was not pursued by the ATO as the SG debt was irrecoverable at law or uneconomic to pursue.
Chasing employers: What is the ATO required to do?
While employers not coughing up the required amount of money for their employees’ Superannuation Guarantee contributions seems a straightforward issue, just who is responsible for getting the money out of them is less clear cut. The ANAO report noted that the ATO was responsible for supporting “employers to comply with their superannuation guarantee obligations and identify and deal with those who do not”.
According to the ATO, its administration of the SG system covers a range of functions including “marketing, education and assistance; reviewing all complaints of unpaid SG; engaging with employers, and where they do not cooperate with reasonable requests, initiating compliance action; and imposing penalties and charges on employers who do not meet their obligations”.
It is worth noting that the ATO list of functions does not specifically include obtaining outstanding contributions on behalf of employees.
The ATO encourages employees who believe their employer is not paying their SG contributions to report them via its online tool (click here to access the ATO tool https://www.ato.gov.au/calculators-and-tools/report-unpaid-super-contributions-from-my-employer/ ) or over the phone (13 10 20). According to the tax regulator, it then “investigates notifications received from workers about unpaid super and we keep them informed of our progress for investigating and recovering any unpaid super amounts. Where an employer does not cooperate with reasonable requests from the ATO we pursue targeted activities across industries (many that have cash economy participation), regional areas and individual employers.”
Does the ATO have the resources it needs?
It is clear that super is a significant – and troublesome – area for the ATO. According to the ATO’s Annual Report 2015/16, across all the areas of the ATO, superannuation was its fifth most complained about issue with 2,256 complaints, behind issues such as form processing, registration and account management.
Despite this, there are now fewer people within the ATO dedicated to working on super issues. During the 2015/2016 year, staff numbers in the ATO’s Superannuation Business Line were down 20.4% from the previous year (from 881 employees to 701 employees at 30 June 2016).
Stamping out non-compliance: what is the ATO actually doing?
Although most employers do the right thing, the ATO is unlikely to ever have sufficient resources to check up on the super entitlements of every one of Australia’s almost 10 million employees.
As an alternative, the tax regulator uses sophisticated data matching as a way of covering as much ground as possible. According to the ATO, it “investigates all reports made to us in relation to the non-payment of SG. We are analysing data to detect patterns in non-payment of SG. We are analysing data to detect patterns in non-payment by employers to be more predictive of employer behaviour. Our early contact approach is helping to achieve viable debt repayment options (this has resulted in more SG being paid directly to employees’ superannuation funds)”.
Each year the ATO identifies a small group of industries at high risk of SG non-compliance, undertakes an industry education campaign and then audits a number of employers within the industry.
The ATO also identifies particular employers considered at more risk of non-compliance and selects them for an audit. Since 2008, this ‘high-risk industry strategy’ has covered the hairdressing, cleaning, road freight, automotive repairers, cafes and restaurants, child care and hotel industries.
Chasing the baddies: what about my employer?
Unfortunately, these “targeted compliance activities” mean the ATO is unlikely to be checking your employer if you work outside these high-risk industries, so you need to keep a close eye on whether or not your employer is paying up.
If you lodge an enquiry or employee notification (EN) with the ATO about unpaid super, there is a five-step investigation process:
- Query received
- Investigation progressing
- Employer debt established
- Debt collection process
- Query closed
During its investigation, the ATO will keep you updated about the progress of your case by letter, email or via your myGov account. For a detailed explanation of this process, see the ATO’s unpaid super website.
As part of the investigation process, employees need to provide detailed information to the ATO, including documents proving you had a formal ‘employment relationship’ with your employer. As noted above, the use of sham contracting arrangements by employers is one way they avoid paying their SG obligations. The ATO will not pursue such cases on an employee’s behalf.
For the 2015/2016 year, the ATO reported it had finalised 76% of employee notifications (EN) within four months and 100% within 12 months. The ATO does not disclose how many of these notifications involved successful payment of SG obligations by the non-compliant employers.
Note: If your employer fails to provide the necessary information by the deadline, the ATO may need to go to court to obtain it, which can take a very long time.
Why doesn’t the ATO get my super money for me?
Just because your employer has not paid up your SG entitlements does not mean the ATO will automatically be able to get your money for you. The ATO 2015/16 Annual Report noted there were 10,761 SG complaints that led to a super liability being raised against an employer, but in 4,120 cases there was no result.
According to the ATO’s website, the ATO will not recover your unpaid super entitlements if:
- The employer provides information proving they don’t owe you any SG.
- The employer provides information proving the amount previously calculated was incorrect.
- Legal action has been taken to prevent employer payments being pursued.
- You are a contractor and you are seeking super contributions for past years (unless your employer deliberately misclassified you as a contractor).
- Your employer is bankrupt, its company is in liquidation or is under administration. (In this situation you need to contact the company administrator or liquidator.)
- Your employer’s company is deregistered, so there is no business to take action against.
- The ATO decides the debt is not recoverable.
Important: You will also not be paid if “the cost of us pursuing the unpaid super is higher than the amount owned to you”. This means the ATO will not chase your money if it will cost more in terms of staff time or legal bills to pursue your employer than the amount you are owed.
The SG legislation requires employers to keep records for five years. If your complaint is outside this time period, the ATO will only act if you have sufficient written documentation to support your entitlement. Even if you have documentation, the ATO may decide not to take any further action.
Industry fund members: another option for help
Members of industry super funds may be able to get help from their super fund. Some industry super funds use a credit control and debt recovery provider, Industry Funds Credit Control (IFCC), which works to recover unpaid SG contributions on behalf of members of industry super funds.
According to IFCC, it has recovered more than $1 billion in SG entitlements over the past two decades by using specialised legal and insolvency services. Although the ATO does not lodge claims to recover unpaid SG on behalf of employees in insolvency cases, IFCC may be willing to lodge a claim on your behalf. For more information, contact your industry super fund.
For more information about how to check your SG entitlements, and monitor your employer, see the following SuperGuide articles: