Super Guarantee Reforms don’t quite close the GAP

Dana Fleming, Partner, Tax
Dana Fleming, Partner, Tax

Released Friday 1 September by the Australian Taxation Office (ATO) is the “Super Guarantee Gap”. This is difference between the amount payable by employers to meet their super guarantee (SG) obligations for their employees and the actual amount received by employees’ super funds.

For 2015, an estimated $2.85 billion has not made its way to employees’ super accounts. This represents 5.2 percent of the total estimated $54.78 billion in super guarantee that employers were required to pay. Broadly, the Gap was quantified by comparing this to the amount reported by superannuation funds as having been paid to them. Together with voluntary savings and the pension, SG is a key pillar of ensuring working Australians can retire with dignity. So how can this happen?

The ATO undertakes extensive case work to ensure compliance, including fielding over 20,000 reports each year, but the reality is that SG is only required to be paid quarterly and is not aligned with shorter pay cycles. In these circumstances, there is a high risk of non-compliance when businesses come under financial stress. The ATO estimates that 50% of unpaid super is attributable to insolvency.

This issue has long been an area of focus by super funds who have implemented their own monitoring systems and data analytics to endeavour to identify and pro-actively manage “problem” employers to protect their members and reduce the Gap.

Pleasingly, after considering the report of the SG Cross-Agency Working Group (the Working Group), released on 14 July 2017, the Government has now announced a package of reforms to improve SG non-compliance including at least monthly reporting to the ATO and enhanced recovery powers for the ATO and use of security bonds for high risk employers The most powerful initiative is to extend ‘Single Touch Payroll’ – a reporting system which will provide real-time visibility to the ATO at the time of payment of wages to employees of the associated PAYG withholding and super information, which applies to businesses with greater than 20 employees from 1 July 2018 and to all Australian businesses from 1 July 2019. This will enable the ATO to identify patterns and potential non-compliance earlier and provide a greater focus in its reviews.

Whilst these are welcome reforms, arguably the single most powerful reform the Government could make is to require employers to pay SG at least monthly, rather than quarterly, and potentially to align SG payments with pay cycles as technology improves. Whilst appropriate transitional arrangements may be required, especially for small business, it’s puzzling that this simple step has not been taken.

Interestingly, the Working Group did not recommend increasing the frequency of SG payments, at this time, due to being ‘mindful of the potential implications of more frequent payment on small business cash flow requirements’. This prompts one to wonder at the general health of the small business sector and what data was presented to the Working Group to make this concession to small business and cause them to back away from making this recommendation (to say move to monthly payments). The Working Group did contextualise this comment expressing the view that improvements to data visibility, such as Single Touch Payroll, should be the main priority, after which payment frequency could be reviewed.

Let’s hope for working Australians this is earlier than 1 July 2019 when Single Touch Payroll becomes fully operational.

For those employers wanting to reduce the risk of under or overpaying SG and improve compliance, Data Analytics can assist by analysing payroll code configurations of ‘ordinary time earnings’ and by identifying contractor payments that may be at high risk of SG shortfalls.

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