Superannuation guarantee contributions are those contributions required to be made by an employer to an employee's super fund. The current rate is 9.5% and is proposed to increase in 0.5% increments over the next few years, culminating in a 12% rate in the income year ended 30 June 2026. Broadly, the amount of the superannuation guarantee contribution is the rate multiplied by an employee's ordinary-time-earnings.
In their research results, the ATO refer to a 'net gap' estimate, being the superannuation guarantee gap taking into account ATO compliance activities and a 'gross gap' estimate, being the estimated superannuation guarantee gap assuming no ATO compliance activity. The ATO's estimate of the net gap for the financial year ended 30 June 2015 is $2.85 billion, representing 5.2% of the total estimated $54.78 billion in superannuation guarantee employers were required to pay in that income year. The estimate of the gross gap is $3.27 billion, representing 6% of the total.
ATO action to reduce the gap
Deputy Commissioner James O'Halloran stated that the analysis indicates that while 95% of estimated superannuation guarantee is paid, there are still some employers that are not paying enough or not paying at all.
To reduce the pay gap, the ATO intends to focus on reducing non-compliance in the following three ways:
- helping employers to get it right;
- helping employees understand their entitlements; and
- correcting those employers who don't get it right.
The first two approaches are aimed at educating employers and employees in respect of their rights and obligations. The ATO have links on their website to guides and various other resources available to employers and employees. The third approach involves enforcement action aimed at changing employer behaviour and recovering unpaid superannuation guarantee. The ATO will address non-compliance through investigating complaints made by employees (on average 20,000 employee notifications each year) as well as through detailed data analytical approaches to identifying non-compliant employers.
Reviews and audits
Clearly the ATO have devoted significant resources into enforcement action. It currently has over 150 staff working full-time on superannuation guarantee compliance. In a previous income year, the ATO undertook around 23,000 reviews and audits to address superannuation guarantee non-compliance.
The ATO is also now working with other governmental agencies to enhance their superannuation guarantee compliance approaches through stronger monitoring and detection. Mr O'Halloran also states that the ATO are increasing their proactive superannuation guarantee case work by one third this financial year.
Risks and consequences
The obligation to pay superannuation guarantee is often not straightforward. The issue that arises most often is whether a worker is an 'employee' or 'contractor' for the purposes of the relevant statute, an important issue as employers are not required to make superannuation guarantee contributions to 'contractors'. This is commonly a factual question that involves a careful analysis of the relevant cases and a weighing-up of the factors cited in those cases to determine the most likely conclusion. The boundaries between 'employee' and 'contractor' are unclear and can be finely balanced at times, for instance, it is not unusual for the analysis to turn on a minor clause in a contract between the principal and worker.
Even when the obligation to pay superannuation guarantee exists for an employer, it is also necessary to ensure that the correct amount is paid. In addition to ordinary salary and wages, care must be taken to determine whether other amounts such as allowances, shift-loadings, annual leave, termination payments, bonuses are also be taken into account when calculating the correct amount of superannuation guarantee to pay.
The consequences for failing to pay superannuation guarantee are serious. Employers can be issued with superannuation guarantee charge statements requiring the employer to pay the superannuation guarantee charge (an amount equal at the very least to the unpaid superannuation guarantee) in addition to interest and additional penalties (which can be up to 200% of the superannuation guarantee charge). Further unpaid superannuation guarantee charge can also accrue general interest charge, currently set as an annual rate of 8.73% accruing and compounding daily until payment of the superannuation guarantee charge. Where employers are companies, the ATO can also issue director penalty notices to the directors of those companies making them personally liable for unpaid superannuation guarantee charge.
We can assist
In light of increased ATO monitoring and the key risk factors outlined above, it is crucial that employers are aware of their obligations to pay the correct amounts of superannuation guarantee. If you have concerns about whether you are paying the right amount of superannuation guarantee as an employer, we recommend we address any concerns with a degree of caution. Timing is everything and can determine whether you will be required to pay costly penalties in addition to the primary liability. We can assist with this risk assessment process.
Alternatively, if you have been notified by the ATO that they will be undertaking an audit of your affairs, it is important that you immediately seek legal advice. MinterEllison are a trusted adviser of the ATO and through our deep understanding of the ATO's decision-making processes and access to senior officers within the ATO, we can help you successfully navigate through the unpleasant experience of facing an ATO audit.