When it comes to restoring wage trust, superannuation is one of the biggest challenges facing regulators, employers and employees.
So much so, that in 2018 the federal government offered an amnesty to employers who came forward to 'make good' on their historical super shortfalls. It's been hugely popular: over 24,000 companies remediated over $580 million in unpaid super to 393,000 workers, according to the ATO.
But the superannuation guarantee (SG) amnesty ended in September 2020. Now, businesses who fail to meet their superannuation obligations face harsh penalties. These include a minimum 100% Part 7 penalty, as well as personal liability for company directors deemed repeat offenders.
Superannuation compliance is very difficult: it relies on payroll systems, interpretation of many industrial awards, contracts and policies, individual employee circumstances, changes in superannuation rules over time and ongoing training of individuals involved in the compliance process. By its nature superannuation compliance is inherently complex and needs robust systems and processes with contemporaneous checks and reviews to ensure ongoing compliance.
Working in good faith
Fortunately, leaders within the ATO recognise the challenge. The ATO says it wants to work with employers to create an environment that encourages monitoring and voluntary disclosure.
According to the Practice Statement Law Administration PS LA 2020/4, the ATO remains open to remitting up to 100% of the Part 7 penalty where:
- an employer voluntarily disclosures the shortfall before the ATO starts an audit or investigation
- the source of the shortfall is an unintentional error, and
- the employer has a good compliance history.
Complexity is the problem
If we've learnt one thing through the SG amnesty, it's that super is not a set and forget proposition. Yet that is the way that most companies have managed it historically.
In our experience, the vast majority of senior executives and Boards implicitly trust that employees receive their correct superannuation entitlements. Leaders are genuinely alarmed when it is revealed otherwise. In fact, overpayments are as common as underpayments.
The main reason superannuation is so difficult is because it's complicated. Not only are payroll processes complex, but so too are superannuation obligations, with legislative, industrial agreement and contractual arrangements to consider. This complexity means employers will continue to face compliance challenges.
So, how can employers improve their superannuation compliance? How can they stay on the right side of the ATO and build trust with employees? In our experience, there are four key areas where companies should focus their attention.
1. Wage code mapping
Wage code mapping in payroll systems is a key source of superannuation error. Problems occur when one code is used for wage payments that have multiple superannuation treatments. Two of the most common scenarios are car allowances and workers compensation. For example, employees receiving workers compensation may only be entitled to superannuation when they return to work. Car allowances based on cents per kilometre are not subject to superannuation, but other arrangements may be.
Using a mixed wage code in payroll systems for these cases won't work as it doesn't allow for precise treatments. Instead, payroll systems need to have clearly labelled codes that match an employee's unique circumstances. Payroll teams also need to understand what each of the codes means, when to apply the right one and why they might need to set up new ones.
2. Payroll processing systems
Most payroll systems are set up to deal with 'normal' arrangements. In other words, an employee starts, works some time and then leaves. If everything goes according to plan, then superannuation will probably be paid correctly 99% of the time. But real life is far more complicated. So, unless your payroll system is built to cope with these complexities, errors are inevitable.
For example, an employee forgets to provide superannuation fund details, and the payroll system has no alerts to let anyone know. Or an employee is set to leave, but someone in payroll turns off the map of their superannuation details before their final pay is made and they miss out on a superannuation contribution. Then there are complex processing challenges involving back pay, negative adjustments, historical annual leave loading entitlements, payments under settlement deeds, overtime classifications, unpaid leave, eligible termination payments, rostered days off and more.
When payroll systems can't cope with these scenarios, teams must manage these processes manually, creating a source of potential errors. Employers need to consider how their systems and processes can be improved to handle the every day complexities that arise and the impacts of these on superannuation compliance.
3. Complex concurrent superannuation obligations
Superannuation entitlements can vary from employee to employee. Some may have a minimum 9.5%, while others may volunteer to pay more. Certain workforces may be covered by an overarching enterprise agreement that stipulates a 15% rate of superannuation, for example. Then there's industrial agreements, contractual entitlements and internal policy decisions to consider. These complex arrangements can test even the most compliance-focused employers.
Payroll teams need to ensure that their systems are up to date with the latest and most relevant information about their employee's super entitlement.
4. Dealing with contractors
There's a common view among employers that contractors who sit outside the payroll system aren't entitled to superannuation. But it's simply not the case. The law says that superannuation is payable when a contractor is paid wholly or principally for their labour.
A recent Full Federal Court decision in Dental Corporation v Moffet  FCAFC 188 suggests that the law applies to a broader range of independent contractor arrangements than many thought. Employers can expect the ATO to increase its focus on payments of super for contractors.
Reconciliation and review are the answer
The best means to achieve compliance with the superannuation guarantee legislation is to stay vigilant. At the very least, employers should implement a quarterly reconciliation process to identify anomalies and errors. However to really get on top of the compliance challenges, businesses should be taking a comprehensive approach.
This involves building a robust framework which includes not only system configurations and business process reviews but extends to training and continual upskilling of payroll teams and other stakeholders.