Slater & Gordon : Superbad - the prevalence of superannuation underpayments

Whilst the prevalence of underpayment of wages has been widely publicised in recent times, the prevalence of the underpayment of superannuation should be paid attention to.

Underpaying superannuation can result in larger financial losses in the long term due to the missed opportunity to accrue compound interest.

A report released by the Senate Economics Reference Committee this month has found that the current provisions of the Superannuation Guarantee Act and the accompanying regulations are inadequate in protecting employees' superannuation entitlements.

The problem

In their submission to the Committee, Industry Super Australia estimated that employees were underpaid AUD$5.6million of superannuation in the 2013-2014 period.

The effects of these underpayments are significant in the long term, given the losses in compound interest that accrue over the course of an employee's working life.

Non-compliance with the Superannuation Guarantee provisions by some employers is particularly problematic, as the effect of it is to make compliant employers less competitive than incompliant employers.

Particular industries were identified as being prone to superannuation underpayments including the hospitality sector and the building and construction sectors. This is primarily the case due to the casualisation of the workforce in these sectors. Further, women, young people and people from culturally diverse backgrounds were identified as demographics groups that were most at risk.

The reasons for non-compliance

While the reasons for non-compliance are numerous and varied, there are a number of legislative provisions, which create obstacles for detecting non-compliance.

These legislative obstacles include the requirement that an employee earn more than $450 a month to be eligible for superannuation. The Committee found that there was evidence that employers purposefully roster employees so that they did not meet this minimum threshold a month.

It is in this way the minimum threshold has the effect of creating an incentive to keep wages low and shifts irregular.

Accordingly, the Committee recommended that the $450 monthly income threshold be reviewed.

Further, it is the case that some employers count voluntary superannuation contributions toward the minimum superannuation guarantee, which has the effect of reducing the size of their superannuation liability. The Committee heard evidence that despite the fact that this practice is not permitted under the Fair Work Act, it continues to be prevalent.

Finally, the requirement that superannuation be paid to superannuation funds quarterly presents additional compliance issues. This is because the irregular transfer requirements make it difficult for the ATO to detect non-compliance.

Accordingly, the Committee recommended that the frequency at which the payments are required to be made is increased to monthly instalments.

The solution

The Committee found that the Australian Tax Office's response to underpayment of superannuation is limited by their largely reactive approach to monitoring compliance. Accordingly, the Committee recommended that the ATO take a more proactive approach including conducting random audits. The Committee also recommended that the government contribute additional resources to the ATO's investigative function in respect of superannuation.

Additionally, given the committee found that a number of unscrupulous employers commonly deliberately avoided compliance with their obligations; it was observed that a system which relies of self-reporting did not provide a sufficient deterrent. For this reason, the Committee recommended the introduction of stronger penalties for deliberate and repeated non-compliant employers.

Finally, the Committee recommended that the Fair Work Ombudsman should have a greater role in enforcing compliance of the Superannuation Guarantee. This would be a significant change from the current practice where the FWO simply refers complaints of non-compliance to the ATO.

Suspect you have been underpaid superannuation?

If you suspect that you have not been paid the right amount of superannuation you can report your employer to the ATO and they will investigate the underpayment.

However, it is important to note that time limitations apply and if your complaint is out of time the ATO may not investigate.

We can assist you in quantifying the amount of superannuation that you should have been paid, which will assist you in ATO investigation process. If you are unsure you have not been paid the correct amount of superannuation, please contact our employment law team by calling our specialised new client services team on 1800 555 777.