Published: 30 May 2017
Author: Stringer Clark

"Compulsory" Superannuation: Oh Yeah

Some years ago we secured leaked correspondence passing between the Labour Lawyer and the Minister for All Things.

We have secured further leaked correspondence between them, this time about a massive superannuation fraud on workers.

Dear Minister for All Things

"Compulsory" Superannuation: Oh Yeah

All employers are meant to pay 9.5% of employees’ pay as superannuation contributions for the employees’ benefit. The system is often described as being a “compulsory” superannuation scheme.

Unfortunately the scheme is less than universally effective and rather than being compulsory, underpayment is rife.

Estimates of unpaid superannuation vary. One estimate recently provided to the Senate Economics References Committee in respect of its Inquiry into unpaid superannuation estimated there was $5.6 billion in unpaid (compulsory) superannuation in 2013-2014.

This is scandal and a fraud on workers of epic proportions.

Some of the problems of the system are as follows:

1) Employer compliance is largely left to the Australian Taxation Office (ATO). The ATO’s compliance activity is inadequate and overwhelming confined to:

(a) Self-reporting by employers: hardly the most powerful regulatory approach;

(b) Employee complaints: employee complaints generally arise after the employment relationship has ended and require a level of sophistication to indentify non payment;

(c) Referrals by the Fair Work Ombudsman: the FWO instead of prosecuting for breach of industrial instrument refers superannuation underpayments to the ATO.

(d) Reporting in situations of company insolvency:  generally on insolvency the money has already disappeared.

2) Employer avoidance of the obligation is facilitated by a series of loopholes such as: 

(a) There being no requirement to pay superannuation on earnings of less then $450 per month;

(b) Instead of employees’ own salary sacrifice contributions being in addition to the employers’ 9.5% “compulsory” contributions, they are used by employers to meet their 9.5% obligation. This is possible because these salary sacrifice contributions are deemed to be employer contributions. This means that employees are subsidising their employer’s superannuation contributions with their salary sacrifice amounts;

(c) The requirement to make superannuation contributions under superannuation law only every three months in order to avoid the liability to pay the Superannuation Guarantee Charge. This makes timely tracking of payments complex and difficult;

(d) Confusion (whether genuine or not) as to the status of employees as employees or as independent contractors in respect of obligation to make superannuation contributions;

(e) Employer use of so called dual employment such that they employ employees under different contracts, availing themselves on multiple times of the $450 per month minimum earnings before superannuation is due;

(f) The cash economy such that “cash in hand” payments are used to avoid the superannuation (and other) obligations;

(g) “Phoenix company activity” under which companies are liquidated with employees’ superannuation (and other) entitlements being lost, only for the same Directors/Owners to establish a new company engaging in exactly the same business, often in the same premises;

(h) The absence of a capacity for employees to initiate direct action to recover payments of superannuation (other than for employees under industrial awards or agreements that impose obligations for superannuation contributions);

(i) The exploitation of lower paid employees with limited English language skills with outright unlawful standover and similar tactics;

(j) Sham contracting arrangements under which genuine employees are compelled to enter into contractual arrangements to avoid obligations for superannuation (and other standard employee entitlements). These arrangements are frequently legally ineffective in any event given that superannuation is payable in respect of independent contractor arrangements if the contract is principally for the supply of labour;

(k) Superannuation funds only providing annual statements disclosing employer contributions;

(l) Employers failing to comply with pay slip requirements meant to indicate the amount of superannuation actually paid, combined with modest penalties for such non-compliance; and

(m) Labour hire and like arrangements under which the identity of the employing entity responsible for payment of superannuation is deliberately obscured in order to avoid the liability.

I note that the recent Senate Committee Report "Superbad - wage theft and non-compliance of the superannuation guarantee" made a series of recommendations some of which are designed to address these problems. 

I urge the Government to establish a genuinely "compulsory" superannuation scheme. The present system involves wholesale fraud on working Australians.

Yours worriedly,

The Labour Lawyer.

From the Office of the Minister for All Things

Dear Labour Lawyer

Compulsory Superannuation

Thank you for your letter in relation to compulsory superannuation.

I have passed it to the Secretary of the Department for All Things for a response at some time in the future.

The dissenting report by the Deputy Chair of the Senate Economic References Committee, to which you referred in your letter, hit the nail (sic employees) on the head when she said: 

"the Turnbull Government takes employer non-compliance with their obligations very seriously"

The Government is confident most employers do the right thing.

So - just don’t you worry. 

Yours complacently,

The Minister For All Things

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