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Superannuation underpayments: What regulators are doing to protect employees’ future

Superannuation underpayments

The superannuation guarantee amnesty has reinforced superannuation underpayments as an important, high-profile and prevalent issue, write David Sofrà and Thomas Purnell.

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David Sofrà

Partner in Charge, Indirect Tax & Grants; Regional Leader, Payroll Services and ASPAC Lead Employment Taxes

KPMG Australia

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In response to the Federal Government’s recent superannuation guarantee amnesty (the amnesty), 24,000 employers came forward and disclosed $588 million of unpaid or underpaid superannuation that they owed in respect of their employees.

While meaningful for the nearly 400,000 affected employees, this result fell significantly short of the Government’s reported $2.3 billion superannuation gap and means that superannuation underpayments will continue to be a focus for regulators.

Unfortunately, amid a global pandemic and its resulting shift in business priorities, this saw many employers unable to review their historical superannuation guarantee (SG) compliance under the amnesty. Employers must now ask themselves what comes next.

Key points

  • Now that the amnesty has expired, employers that are caught underpaying employees’ SG entitlements face significant penalties (potentially in excess of 200 percent of the shortfall).
  • Employers that take voluntary action to remediate an SG shortfall prior to an ATO audit may still have the additional Part VII penalties fully remitted in certain circumstances.
  • The ATO is preparing to launch significantly more proactive investigations using Single Touch Payroll analytics and data-sharing with the Fair Work Ombudsman.
  • The increased involvement of the Fair Work Ombudsman means that employers should also ensure that they are meeting their contractual employment obligations beyond the SG requirements.

Harsher penalties for getting caught, but there is still a chance to come forward

Now that the amnesty has expired, employers that disclose a SG shortfall in response to an ATO audit will face significant penalties. Specifically, employers will need to pay a non-deductible Superannuation Guarantee Charge (SGC) to the ATO, comprising of the shortfall, Part VII penalties of up to 200 percent of the shortfall amount, an administration charge of $20 per employee per quarter, and nominal interest calculated at 10 percent per annum.

The current draft of the revised ATO practice statement broadly limits the Commissioner’s discretion to remit the Part VII penalties to situations where an employer has voluntarily come forward before an ATO compliance action, or where exceptional circumstances apply.

Where employers voluntarily come forward and are seen to have taken steps to mitigate the cause of the SG underpayment, the Commissioner may still fully remit the Part VII penalties in certain scenarios.

ATO will have increased visibility of underpayments through Single Touch Payroll

Employers also need to be aware that there is now a much higher probability for non-compliance to be detected.

Over recent months, we have seen an increase in the number of ATO-initiated investigations of superannuation underpayments and expect that there will continue to be an increase in proactive enforcement from regulators.

In the lead-up to the amnesty deadline, the ATO has invested in developing its internal analytics capabilities that will allow it to use Single Touch Payroll data to identify instances of non-compliance with the SG legislation.

It is especially important that employers consider reviewing their superannuation practices and historical activity before the introduction of Single Touch Payroll Phase 2 (STP2) early next year. While STP2 will only provide the ATO with real-time access to granular pay data on a prospective basis, employers identified as being at risk of non-compliance will likely be required to undergo an ATO audit of their historical superannuation contribution practices, and potentially face the newly increased penalties.

Regulators are aligning their enforcement activities to combat wage underpayments

Increased cooperation between the ATO and the Fair Work Ombudsman has seen the regulators sharing employer ABNs with each other to fully investigate the implications of superannuation underpayments and wage underpayments more broadly.

In the latest exchange, the ATO provided the Fair Work Ombudsman 1,285 ABNs where the ATO had identified some form of non-compliance in the employer’s tax affairs.

This type of inter-agency cooperation raises important concerns around how regulators are going to approach ‘at-risk’ employers identified using STP2 and what this could mean for enforcement of employment obligations beyond the superannuation guarantee.

Additionally, the Fair Work Ombudsman has stated that large corporates will continue to be a focus for its enforcement activities due to the significant public interest and high-profile cases in the media.

To pre-empt difficult questions from the Fair Work Ombudsman, employers should initially consider reviewing their compliance with their contractual superannuation obligations, beyond what is required under the SG legislation. Through helping our clients disclose and remediate SG shortfalls under the amnesty, we found that many organisations with enterprise bargaining agreements have additional contractual complexities that need to be considered to ensure they are getting it right.

Conclusion

The superannuation guarantee amnesty has reinforced that superannuation underpayments are an important, high-profile and prevalent issue in our industrial relations landscape. With higher penalties and risk of detection, employers now need to consider how they intend to navigate this complex issue, minimise financial and reputational risks and do the right thing by their employees during these difficult times.

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