In this time of great uncertainty, Australia’s workforce regulators are moving to protect vulnerable workers, maintain trust in our economy and to prioritise matters of significant public interest. Over recent months we have seen a great deal of attention directed toward wage underpayments and missed superannuation entitlements, with an increase in compliance and enforcement activity from both Fair Work and the Australian Taxation Office across all industries. For many employers, high profile and public conversations about employment obligations have raised important questions. Employer’s historical compliance with the superannuation guarantee, the opportunity to prepare for the end of the Federal Government’s current amnesty and what this means for their directors will be front of mind.
Given that directors are personally liable for a company’s unpaid superannuation, it is important that executives are able to answer the following:
On 6 March 2020 the government introduced a superannuation guarantee (SG) amnesty (the amnesty) to establish a clean slate for future industrial relations reform. The amnesty provides employers with the opportunity to take a closer look at their historical superannuation activity and disclose any unpaid obligations without facing administrative and penalty charges, for quarters starting from 1 July 1992 to 31 March 2018. While payments of any unmet obligations will be included in the amnesty until 7 September 2020, employers will need to act immediately to ensure that they accurately assess their position before the deadline.
The amnesty provides employers the opportunity to disclose and rectify any unpaid superannuation guarantee charge (SGC) for quarters during the amnesty period, without adverse income tax implications or facing the administrative charge or Part 7 penalties.
Specifically, the reduced payment under the amnesty is comprised of any shortfall identified and calculated interest (nominal interest of 10 percent p.a., plus a general interest charge component) and allows the employer to deduct any SGC paid by the due date. In instances where superannuation underpayments have gone unnoticed for some time, the amnesty may represent a significant reduction in an employer’s outstanding liability (with the waived administrative charge being $20 per employee per quarter and Part 7 penalties being up to 200 percent of the total amount) and remove the need to amend prior year income tax returns.
Given that the SGC is calculated on a quarterly basis, employers will need to establish the ordinary time earnings for every employee during the period, the actual amounts contributed to the superannuation funds, and collect data on the timing of the contributions to ensure they were compliant in every quarter.
Payroll practices can unknowingly lead to discrepancies between calculated and actual superannuation contributions paid to an employee’s superannuation fund. To ensure that the correct disclosures are made under the amnesty, employers should consider systematically analysing their enterprise agreements, payroll data and practices to determine if they have an outstanding SGC.
Directors are personally liable for a company’s unpaid superannuation.
Under the ATO’s Director Penalty Notice regime, company directors can be personally liable for a company’s unpaid superannuation. This mechanism gives the ATO the power to initiate legal proceedings against company directors to recover any outstanding Super Guarantee Charge (SGC), and issue additional penalties for non-compliance.
However, we have seen that company directors and board members can play an instrumental role in establishing the correct systems and protocols to ensure that SG obligations are met on a historical and prospective basis. Specifically, directors and board members must ensure that the correct reporting structures are in place to establish accountability and to allow for instances of incorrect payments to be escalated to the relevant payroll, human resource and finance leaders within the organisation.
Ensuring that employees have the right capabilities to identify payroll issues in-house, and establishing annual compliance programs and configuration reviews, has shown to mitigate the risk of errors going unnoticed, and can help lead conversations with the regulators where underpayments are identified. When assistance is sought on the disclosure process, a company’s willingness to cooperate with regulators can often be improved potentially resulting in the reduced likelihood of severe penalties.
With the introduction of Single Touch Payroll (STP) and taxable payments reporting regime, regulators now have the ability to monitor actual payments made to employees, and data match between agencies to launch investigations into potential instances of underpayments.
Increasingly, we have seen the ATO work with the Fair Work Ombudsman on several high profile instances of large scale and systemic underpayments; of both wages and superannuation. The combined purview of these regulators has unified compliance and enforcement activity to ensure that instances of wage underpayment are investigated for their superannuation implications.
Given that the FY20 STP reporting deadline (for employers with more than 19 employees) is 14 July, employers should act immediately to consider if they may fall into one of the ‘high risk’ categories that may be subject to additional attention from the Fair Work Ombudsman and ATO over the coming months.
In our view, it is essential that employers in the following industries immediately start discussions about wage and superannuation underpayment risks at both the senior management and board levels:
Open conversations around employment obligations and payroll practices will best prepare organisations to identify instances of underpayments, prepare for the end of the current SG amnesty, and be seen to be taking a proactive approach before potential enquiry from regulators.
Australia’s employment landscape is shifting its focus to ensure organisations and their directors are held accountable to the rights of their employees. Due to the complexity of our industrial relations system, many employers will need to take immediate action to understand if they have been fulfilling their obligations historically, and to develop a roadmap to ensure they get it right going forward. In our view, the current superannuation guarantee amnesty presents an important opportunity for employers to take a closer look at their historical practices, minimise the financial and reputational risk of potential underpayments, and play their part in ensuring a fair economy.