Have you been paying superannuation during the pandemic? The ATO would like to know…

The Australian Senate's Economic References Committee has recently completed its inquiry into Unlawful underpayments of employees' remuneration. The inquiry's report, "Systemic, sustained and shameful", sets out a range of underpayments that have been occurring within Australian businesses, including in relation to wages, penalty rates, meals and other loadings as well as allowances, overtime and time off in lieu. Importantly, the report specifically singles out superannuation as a critical issue.

The report notes the Australian Taxation Office's evidence that for the 2018-2019 financial year, the shortfall in superannuation that should have been paid nationally was $2.5 billion. It's likely that, during and as a result of the COVID-19 pandemic, this number has since increased year on year.

The report included evidence from ATO Deputy Commissioner, Ms Emma Rosenzweig, indicating that throughout the pandemic the ATO had been prioritising supporting businesses to minimise the negative impacts they faced during the pandemic. This included putting superannuation guarantee audit activity on hold, refraining from vigorous debt collection activity, and holding off the use of some of the most significant of the ATO’s powers to compel compliance with superannuation obligations.

However, with the pandemic drawing to a close, Ms Rosenzweig indicated that the ATO’s flexibility during the pandemic is also coming to an end, stating “we are starting to renew our activity in debt collection and re-engage with businesses who owe us money. As part of that, we are thinking about the full suite of tools that we have available and when it's appropriate to use them.”

Ms Rosenzweig drew the inquiry's attention to the ATO's ‘direction-to-pay power’ as an example, whereby the ATO may issue employers with a direction to pay an outstanding superannuation guarantee charge within a specified period. Failure to comply with such a direction carries criminal consequences. Other significant recovery tools include director penalty notices which make directors personally liable for the unpaid superannuation guarantee contributions of the employer company. Director penalty notices are notoriously difficult to challenge and displace, by design.

What are an employer’s superannuation guarantee obligations?

Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act), employers must pay superannuation guarantee contributions equal to 10% of an eligible employee’s ordinary time earnings (at a minimum).^[1] This superannuation guarantee must be at least paid quarterly. An employer who breaches their obligations under the SG Act may face certain penalties, including:

• an additional superannuation guarantee charge (SG Charge), comprised of the superannuation guarantee shortfall, nominal interest of 10% p.a. and an administration fee of $20 per employee, per quarter;
• a general interest charge for late payment of the SG Charge; and
• further penalties under Part 7 of the SG Act (up to a maximum of 200% of the SG Charge).

The legislative design is such that if a payment date is missed, the liability becomes greater and continues to increase until it is paid and reported to the ATO; it is not enough to simply pay the missed superannuation guarantee amount late.

The amnesty period has expired

The ATO was responsible for administering a legislated Superannuation Guarantee amnesty (SG Amnesty) from 24 May 2018 to 7 September 2020. The SG Amnesty gave employers a temporary amnesty to self-correct and voluntarily disclose historical non-compliance with superannuation guarantee payments to the ATO. Eligible employers who disclosed non-compliance during the period commencing 1 July 1992 and ending 31 March 2018, were able to:

• claim a tax deduction for the SG Charge;
• avoid liability for the administration fee component of the SG Charge; and
• avoid a penalty under Part 7 of the SG Act.

However, the SG Amnesty legislation imposed harsher outcomes for employers who failed to disclose any late, unpaid or underpaid superannuation guarantee amounts that were identified during a quarter that was covered by the amnesty period (1 July 1992 to 31 March 2018). An employer who does not lodge a "Superannuation Guarantee Charge Statement" in respect of a superannuation shortfall in respect of those quarters may face a minimum mandatory penalty of 100% of the SG Charge, if the ATO commences compliance activity first.

What this means for employers

As we move out of the pandemic we are already seeing an increase in regulator activity across the board. Ms Rosenzweig’s evidence to the inquiry can be taken as a caution to employers that the ATO intends to start prioritising active enforcement of employer’s superannuation guarantee obligations. There are, however, things employers can consider doing to proactively manage the new regulatory environment, including:

• undertaking a legal review of their superannuation guarantee compliance;
• conducting a payroll audit of the superannuation component of employees' pay;
• correcting any historical, current or ongoing non-compliance as soon as possible; and,
• where non-compliance is identified, get on the front foot with the ATO and make them aware of your intentions to remediate.

When it comes to compliance with superannuation obligations, being proactive is of critical importance as the shortfalls and penalties will continue to grow, and the ATO has the power to make directors personally liable.

^[1] Note that this is scheduled to progressively increase to 12% of an employee’s ordinary time earnings by 2025.^{Back to article}