Unpaid superannuation: tax office should better police employers – Senate report

Gareth Hutchens
Miners finishing their shift. Senators heard evidence that 2.7 million Australians – one third of eleigible workers – were underpaid an average $2,025 in superannuation each year. Photograph: Bloomberg via Getty Images

Australia’s compulsory super system is too weakly policed by tax authorities, and employers do not face harsh enough penalties for underpaying super, a Senate committee has found.

The economics references committee has released a report into the problem of non-payment of super in Australia, revealing glaring holes in the system.

Accepting evidence that one-third of eligible workers are being underpaid super by their employers, with 2.7 million workers being underpaid an average $2,025 each year, it found the current approach by the Australian Tax Office in identifying and redressing unpaid super was “inadequate” and “reactive.”

It has recommended boosting the powers and resources of the ATO, and giving workers legal recourse to sue their employers for failing to pay their super entitlements.

“Ahead of the budget, the government must strongly consider implementing serious reforms to this aspect of Australia’s retirement system,” Labor senator Chris Ketter said.

“The committee has grave concerns for the current state of the superannuation guarantee system and holds the government entirely responsible for workers not receiving payments on time and in full.”

A 2015 report from the commonwealth auditor general found the ATO’s internal risk assessment indicated that 11% to 20% of employers could be noncompliant with their super guarantee contributions and that non-compliance was “endemic”.

Industry Super Australia, which represents not-for-profit super funds, believes the problem is much worse.

It says the total amount of unpaid super in the 2013-14 financial year was worth $5.6bn, with roughly 610,000 eligible employees paid no super that year.

It says in 2014-15, the ATO raised just $474m in super guarantee liabilities from employee complaints, and the auditor general found the ATO collected only about half the super guarantee nonpayment it identified.

The Senate committee has made 32 recommendations to fix the problem of super guarantee non-compliance. They include:

  • Ensuring the ATO has sufficient resources to properly combat super nonpayment by employers
  • Make sure the ATO includes random audits in its compliance activities
  • Consider a legislated option for employees to take private legal action against their employers for unpaid super
  • Close the loophole that allows employers to count salary sacrifice amounts towards their super guarantee obligations
  • Amend the Super Guarantee Administration Act to require employers to pay workers’ super entitlements monthly, rather than quarterly
  • Consider increasing penalties for deliberate and repeated acts of non-compliance by employers
  • Give the ATO greater powers to recover unpaid super through the director penalty notice framework to stop company directors undertaking fraudulent phoenix activity and avoiding compulsory super obligations

The committee has called on Kelly O’Dwyer, the minister for financial services, to publicly release the interim and final reports of the multiagency working group on super guarantee non-compliance, as well as the 2016 review by the inspector general of taxation.

Ketter said O’Dwyer was “well aware” of the problems associated with the non-payment of super, and the working group was due to report to her by the end of March.

“These reports must be released in full to guide stakeholders about the best way to address the growing problem of unpaid superannuation,” Ketter said.

The Labor-dominated committee (three Labor, two Coalition, one Nick Xenophon Team) did not all agree.

Liberal senator Jane Hume issued a dissenting report saying some of the recommendations made by the committee were beyond the scope of the terms of reference.

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