On Monday, Industry Super Australia released a report detailing how employers failed to pay an astounding $3.6 billion in compulsory superannuation contributions in 2013-14. At least 2.4 million Australian workers were underpaid an average of about $1,500 of their super in that financial year. The reasons for how and why the system is being undermined are many, but include negligence and outright corruption. What can HR professionals do to help set things right?
Under Australian law employers are obliged to contribute a minimum of 9.5 per cent to the super accounts of all workers who earn over $450 a month. The system was put in place in 1992 to ensure Australia’s economy remains robust in the face of an aging population, and ever changing global financial conditions.
Unfortunately, the system is not well understood and can be confusing. The onus to ensure appropriate payments are being correctly lodged falls mostly on individual employees who, on average, have a low level of financial literacy and suffer from a severe information imbalance with the organisations for which they work.
Combine this with an under-resourced Australian Tax Office that fails to rapidly follow up complaints about unpaid super and you have the perfect conditions for unethical businesses to achieve an unfair advantage.
“It is not unusual to hear from members who have lodged a complaint with the ATO still waiting for answers, let alone their money, years afterwards,” Cbus Chairman Steve Bracks, told the Sydney Morning Herald. “Employers who do the right thing by their employees are competing on an uneven playing field against those who don’t.”
The problem might even be worse than the report estimates. The authors draw attention to a loophole that allows a worker’s voluntary salary sacrificing to reduce their employer’s required super contributions. This is often a beneficial and transparent arrangement but when it’s abused, the loophole means those workers who are most diligent about saving for retirement might not realise what’s happening and end up exploited. The report’s authors believe that if the the amount of estimated unpaid super for 2013-14 included the salary sacrificing loophole it would be $1 billion higher.
What HR can do to help
According to the report, small and medium-sized businesses are the least likely to pay their Superannuation Guarantee (SG). So, other than keeping good records and streamlining your superannuation process, how do you ensure you’re maintaining superannuation compliance?
Firstly, paying superannuation regularly is best practise. It avoids the risky scenario of having unpaid obligations hanging around, and the temptation for the organisation to use that money for something else.
“Small businesses and cash-constrained businesses can accumulate superannuation contributions over a three to four month period and that amount sits in their balance sheet as a liability but the cash is in their bank account,” explains Ben Thompson, employment lawyer and founder of payroll platform Employment Hero. “So some businesses will incorrectly use that accumulation as working capital. And if things go wrong then those payments aren’t being made. That’s a legal problem.”
Secondly, make sure all superannuation conversations are transparent. Your employee should understand all salary sacrificing legislation before you encourage such an arrangement.
Finally, Thompson recommends getting ahead of coming changes in technology. As of July 2017 single-touch payroll (STP) will be available but from July 2018 it will become compulsory for businesses with more than 20 employees. This system reports super contributions automatically to the ATO, making it harder for rogue businesses to get away with bad practice.
When organisations insist on separating payroll from HR, and putting it under Accounting & Finance, HR loses the capacity for true oversight .. I have worked for 3 different companies where this was the case, one of which had the payroll function in another state front HR….and even though I shared my concerns that accounting staff did not necessarily have the understanding of payroll requirements nor a focus on employees, Payroll remained with A&F due to resourcing requirements…
I disagree with the heading of this article. This is not a HR issue – it is a Finance issue. Payroll is generally a part of the Finance department of most businesses. It is their job to get these things right. We have to make sure we are not accepting taking over some-one else’s responsibility. Next thing you will be saying that HR is responsible for ensuring compliance with Payroll Tax, Company Tax, and employee’s tax rates.
Agree with the comments already made, that for this to be happening in the main either the function sits under Finance or HR are instructed not to comply with the legislation. Appears apparent the penalties applied by the Govt. for non-compliance with the SG legislation for this to be a deterrent are not working. Given the benefits the Govt. reaps via tax revenue as well as potential future welfare savings, there should be more done to protect the rights of the individual. Would also state it shows the general apathy in relation to superannuation that is shown by a significant… Read more »
I agree with the comments that this is actually a finance issue more than HR as that is where payroll normally sits but I would be curious as to where the estimate of unpaid super came from. We employ a large amount of casual staff once a year yet we often receive several statements throughout the year from Superfunds with a reminder to send funds over for those casual staff estimated on the previous payment. If they’re estimating based on that then that number would be very inflated. On the other hand I know a colleague who worked at a… Read more »
In my experience, it does not matter whether payroll formally sits with Finance or HR, Payroll always needs to straddle both because accounting staff do not have the skills to interpret Award and Fair Work entitlements, and HR people rarely want to be responsible for financial transactions. This issue is a good example of why. In previous roles I have had many robust discussions with the CFO about the frequency of Super payments; the CFO arguing the legal minimum, and my argument supporting best practice employee engagement. Super monies belong to the employee; it is the employee who should be… Read more »