Every week, I receive emails from readers who discover that their employer has failed to pay compulsory employer super contributions (Superannuation Guarantee). Usually, the recalcitrant employer has shut up shop and disappeared, or started a new business somewhere else.
What happens to the unpaid super entitlements? Historically very little if the company had disappeared, even when the owners have set up a new company. More recently, the rules have now changed which means the ATO can impose penalties personally on company directors who fail to meet Superannuation Guarantee (SG) obligations.
Before I explain the additional responsibilities now personally imposed on company directors in relation to SG obligations (see later in the article), I must point out that the majority of employers do the right thing, and when they don’t, the ATO usually chases up slack employers. I explain the process you need to go through if you discover your employer hasn’t paid your Superannuation Guarantee entitlement in the following articles:
- Super for beginners, part 18: My employer hasn’t paid my SG. What can I do?
- Super for beginners, part 19: My employer has gone broke. What happens to my SG entitlements?
Even so there are circumstances where the ATO will have difficulty assisting you, namely, when a company collapses and the company has no assets. In these instances, the ATO can potentially chase the directors of the company and impose personal penalties on these individuals.
In 2010, after nearly 20 years of compulsory employer super, the then ALP federal government announced that directors of failed companies would be personally liable to pay the unpaid Superannuation Guarantee entitlements of employees. The new rules took effect from 2012.
The aim of this rule change is to discourage future non-payment of SG by employers, and to discourage the practice of shutting down one company and walking away from outstanding SG obligations and then starting a new ‘phoenix’ business.
The director penalty regime took effect from the 30 June 2012 quarter, that is, in terms of SG, any unpaid Superannuation Guarantee Charge obligations applicable from and including 30 June 2012 quarter.
Note: Superannuation Guarantee Charge is the penalty imposed on an employer for failing to SG amounts on time, and the SGC includes unpaid SG amount/s plus an interest charge (10% interest), and an administration charge of $20 per employee per quarter. Under the director penalty regime, a company director will be personally responsible for SGC, and also responsible for unpaid PAYG (Pay As You Go) withholding amounts.
The ATO warns any company director that is the director of a company that has outstanding PAYG withholding and SGC obligations, you will become personally liable for a penalty equal to those amounts.
According to the ATO, “the overarching objective of the director penalty regime is to ensure that directors cause the company to comply with certain taxation and superannuation obligations. Directors have a legal responsibility to ensure the company meets its PAYG withholding and SGC obligations. There measures were introduced to ensure directors of companies take appropriate and prompt action with respect to employee entitlements”.
For more information on director penalty notices, see ATO website, and specifically this link.
Regular SG information to employees
You can check your payslip to find out whether your employer has paid super on your behalf (although some very slack employers may record paying contributions but don’t get around to remitting the contributions to the relevant super funds).
Check your payslip to ensure that your employer has recorded super contributions have been paid on your behalf. The payslip will also state the amount of super contributions during the pay period (or, according to Fair Work Australia, it can simply disclose the amount of contributions that need to be made), and the name and/or number of the superannuation fund where the contributions have been, or will be paid to.
Tip: Don’t just rely on your payslip as evidence of your employer paying SG contributions. Periodically check your super account, or regularly check your super fund statements, to ensure SG contributions are made. If you need to follow up on your employer, check out the following SuperGuide articles for more information: