Does the ATO do enough on unpaid super?

As far back as April 2001, the Senate Select Committee on Superannuation and Financial Services produced a report into the enforcement of the Super Guarantee Charge (SGC). It recommended more frequent SG payments and greater protection for employees who lose their SG contributions through employer non-compliance or insolvency.

A report by the Inspector-General of Taxation in March 2010 also recommended improvements to employer compliance in this area (click here to access the IGT report).

This was followed by a June 2015 performance audit by the Australian National Audit Office (ANAO) into the ATO’s effectiveness in promoting employer compliance with SG obligations. The audit found 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).

The 2017 report by the Senate’s Economics Reference Committee, Superbad – Wage theft and non-compliance of the Superannuation Guarantee, was also critical of the ATO’s performance in this area. The report concluded “the current approach of the ATO to identifying and addressing SG non-compliance is inadequate” and should be more proactive (click here to access the report).

How big is the SG problem?

According to the ATO, about 94% of employers are paying the SG without intervention. It admits, however, that “some employers do not make the correct super guarantee contributions for their employees”.

The ATO’s estimate for the amount of unpaid SG – what it calls the gross ‘SG tax gap’ – was $3.26 billion in 2015/2016. After its various compliance activities to recover unpaid SG entitlements, the ATO estimates this gap shrunk to $2.79 billion for 2015/2016. (For more information on how the ATO calculates these amounts, click here.)

According to a 2018 report by Industry Super Australia, the average underpayment of the one in three workers eligible for SG payments is $1,994, or the equivalent of $77 per fortnightly pay. Part-time and casual employees earning less than $30,000 and employees under 30 are a third more likely to be missing out on their entitlement compared to full-time and older workers. The report estimates 2.98 million Australian employees are being short-changed $5.9 billion.

Non-payment of employee SG: What is the ATO doing?

Although employees chasing their super often claim the ATO is not doing enough, the regulator argues it has an active compliance program in relation to SG entitlements. It says from 1 July 2010 to 30 June 2018, over $2.6 billion was transferred to super funds on behalf of 1.8 million employees as a result of ATO compliance activities.

In 2015/2016, the ATO recovered $472 million in SG non-payments as a result of its compliance activities (reviews and audits).

According to the ATO, about 30,000 reports of unpaid SG are made to the tax regulator each year, mostly from employees and former employees of small businesses. It says failure to make SG payments is mainly due to poor cash flow management by employers, lack of understanding by employers of their SG obligations, and low levels of business experience. Employer insolvencies also mean SG debts are sometimes difficult to collect on behalf of employees.

Employer SG amnesty: The amnesty that never was

In 2018, after ongoing negative publicity about employees not receiving their SG payments, the Minister for Revenue and Financial Services announced plans for an immediate 12-month amnesty to encourage small business employers to “wipe the slate clean” and pay past or present workers their unpaid SG entitlements.

Employers who failed to take advantage of the amnesty proposal and were later caught faced higher penalties of at least 50% of the money owed, on top of the unpaid super owed to their employees.

Unfortunately, when Parliament rose in April 2019 for the federal election, the necessary legislation for the amnesty had still not been passed and it immediately lapsed.

Following the failure of this ‘non-amnesty’, the ATO has waived penalties for the hundreds of businesses that fessed up to failing to make their employees’ SG payments. It is treating these employers as though they had voluntarily reported themselves under the existing rules. With this sorry tale in mind, why could things be about to change for employees concerned about non-payment of their super entitlements?

Is Single Touch Payroll (STP) an answer to SG non-compliance?

Sometimes called real-time payroll reporting, the STP system requires employers to send their tax and super information to the ATO from their payroll and accounting software each time they pay their employees. (For more details about STP, see the ATO’s website here.)

Although STP has been in place for employers with 20 or more employees since 1 July 2018, from 1 July 2019 the reporting system is being extended to smaller employers.

Once the ATO receives your employer’s information, it will be automatically uploaded as an Income Statement and be available for you to check through the myGov portal or your tax agent. (For more about myGov, see SuperGuide article What is myGov, and how do I use it?)

The introduction of STP means employers who are late in paying their employees’ super contributions will stand out and the ATO will be able to see more clearly who is and isn’t making SG payments.

As the STP rolls out from 1 July 2019, every single employer payroll in Australia will go straight to the ATO. It can then be matched up by the ATO to SG contributions data from super funds. If your employer isn’t paying – or pays late – the ATO will now know it and will be able to follow up on it.

Although it will take a while for the system to fully roll out, it’s clear the ATO will soon have a lot more information on SG payments. This should mean the ATO will be able to chase up non-paying employers in a more timely fashion.

Chasing employers: What is the ATO required to do?

Although employers not coughing up the required amount of money for their employees’ SG contributions seems a straightforward issue, just who is responsible for getting the money out of them is less clear cut.

According to the ATO, it seeks to “actively reduce the incidence of non-compliance and to improve willing participation by employers” in the SG system. “We focus on reducing non-compliance in three main ways: helping employers get it right, helping employees understand their entitlements, and correcting those employers who don’t get it right,” it notes on the ATO website.

Important: It is worth noting the ATO does not specifically include chasing up outstanding contributions on behalf of employees as part of its SG focus.

Stamping out non-compliance: How active is the ATO?

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.

The ATO uses sophisticated data analytics and predictive tools as a way of covering as much ground as possible and identifying potentially non-compliant employers to review and audit. It also supports employers “to understand and comply with their super guarantee obligations” through face-to-face interactions, by phone, social media and online.

When it comes to recovering unpaid SG entitlements, the ATO says each year it receives and investigates about 30,000 employee notifications relating to approximately 21,000 employers.

Information received from super funds, unions, government agencies and other third parties is also investigated and where appropriate, the ATO says compliance action is undertaken. According to the regulator, it has over 200 staff focused specifically on SG compliance, with another 160 responsible for reviewing SG compliance in conjunction with PAYG Withholding tax audits.

Chasing the baddies: what about my employer?

Despite this activity by the ATO, it’s sensible for employees to keep a close eye on whether or not their employer is making the required SG payments into their super account.

The easiest way to do this is to check with your super fund to find out what SG payments have been made into your super account. You can also use your myGov online account to check how much super has been paid to your super fund.

For more information about when your employer is required to make SG payments, see SuperGuide articles:

• Your simple guide to Superannuation Guarantee (SG) contributions
• What to do if your employer doesn’t pay your super

What happens if I report my employer?

The ATO encourages employees who believe their employer is not paying their SG contributions to report them via its online Report unpaid super contributions from my employer tool or over the phone (13 10 20).

Note: From 1 April 2019, the law permits the ATO to disclose an employer’s non-compliance in relation to paying super entitlements to affected employees, even if they have not lodged a formal enquiry with the ATO.

Once you lodge an enquiry with the ATO about unpaid super, there is a five-step investigation process:

1. Query received
2. Investigation progressing
3. Employer debt established
4. Debt collection process
5. 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 webpage.

As part of the ATO’s investigation process, you will need to provide detailed information, including documents proving you had a formal ‘employment relationship’ with your employer.

Be prepared for a wait, however, as an ATO investigation takes time. For the 2015/2016 year, the ATO reported it had finalised 76% of employee notifications within four months and 100% within 12 months.

If your employer fails to provide the necessary information by the ATO’s deadline, the regulator may need to go to court to obtain it, which can take a very long time.

Important note: If your employer has used a ‘sham contracting’ arrangement where you are actually a contractor rather than an employee, the ATO is not able to pursue unpaid SG entitlements on your behalf.

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 get your money for you.

According to the ATO’s website, it 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, or its company is in liquidation or under administration. (In this situation you need to contact the company’s 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.

Other ways to obtain your unpaid super

If you lodge an enquiry with the ATO, it will take action based on the information you provide.

There are other steps you can take, however, to try to get unpaid super from your employer, including:

• Seek a court order under the Fair Work Act 2009 – If you are employed under the national workplace relations system, you can seek an order from an eligible court.
• Talk to the Fair Work Ombudsman – The Ombudsman may be able to pursue your entitlements on your behalf, including going to court.
• Check your state industrial relations laws – If you are employed under the state industrial relations systems in NSW, Queensland, South Australia, Western Australia or Tasmania, these states have laws enabling the courts to order your employer to pay the shortfall amount to your super fund.

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 their members.

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. To find out more, contact your industry super fund. 

For more information on how to check your SG entitlements and monitor your employer, see the following SuperGuide articles:

• Superannuation Guarantee rules for employers
• What to do if your employer doesn’t pay your super
• What is the maximum super contribution base for 2020/21?