It may seem as though the Superannuation Guarantee (SG) has been a well-entrenched entitlement for Australian employees since its beginnings in 1992. However, the Super Members Council (SMC) recently released analysis of ATO data highlights that the widespread issue of unpaid or underpaid superannuation entitlements still continues.
Under the SG legislation, employers are required to pay superannuation contributions of 11.5% of each employee’s Ordinary Time Earnings Base (OTE). The rate of 11.5% applies from 1 July 2024 and will increase to 12% from 1 July 2025. Superannuation is required to be paid within 28 days following the end of the fiscal quarter.
This isn’t anything new – businesses have been doing this for years and should have all the necessary processes in place. So, what is the risk that we are concerned about?
According to the SMC’s report dated 27 August 2024[1], unpaid superannuation is affecting one in four Australian workers, with the average affected worker missing out on about $1,800 in super in 2021-2022. Their report investigates the major drivers of unpaid super and suggests that while most are unintentional – including mistakes and poor payroll or cashflow management – there are also cases of deliberate wage theft.
The government has described superannuation theft as a form of wage theft and wants to ensure that Australian workers receive and benefit from the super to which they are entitled.
In December 2023, the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (the Act) was passed introducing a criminal offence for intentional underpayment of wages and certain entitlements with effect from 1 January 2025.
Furthermore, from 1 January 2024, superannuation has been added an as entitlement under the National Employment Standards (NES) – as such, unpaid or underpaid superannuation contributions may fall within the scope of the new wage theft offence once it commences from 2025.
As part of these changes, intentional underpayments by employers will become a criminal offence. For companies, penalties are the greater of three times the underpayment amount or $7.825 million, with a minimum of $7.825 million if the underpayment can't be determined. For individuals, penalties include up to 10 years in prison, and the greater of three times the underpayment amount or $1.565 million, with a minimum of $1.565 million if the underpayment can't be determined.
Liability for breaches of Commonwealth workplace laws can extend beyond just the primary offender. Under sections 550 and 557A(5A) of the Fair Work Act 2009 (FW Act), individuals or entities "involved in" a contravention are treated as if they committed the contravention themselves. Legal proceedings can be initiated against anyone who breaches these obligations, including those indirectly (but knowingly) involved. This could involve:
This puts superannuation under an even closer microscope when employees are examining their entitlements. Most employees covered by the NES can take court action under the Fair Work Act to recover unpaid superannuation, unless the ATO has already commenced proceedings in relation to that superannuation. The NES entitlement to superannuation aligns with superannuation laws, so if an employer complies with SG, they will also meet their obligations under the NES.[2]
While few employers deliberately set out to underpay employees’ super, even with the best of intentions they may still be at risk of unintentional non-compliance. Potential issues include the various types of pay that may count as OTE. Even employers who conducted a thorough compliance exercise when OTE was first brought in as the earnings base for SG may have failed to review periodically and therefore not adjusted their pay structures for the ever changing classifications of pay, patterns of work or updates to modern awards and enterprise agreements.
Another source of risk is the mismatch in timing of when wages are paid versus when SG is required to be paid, which can mean that underpayments are not as easily identifiable and employers can face large super bills at the end of each quarter.
To address this, the Australian Government announced its commitment to implementing ‘payday super’. Under the proposed reform, businesses would be required to pay superannuation at the same time as paying wages from 1 July 2026. Although the reform is not yet law, businesses are expected to use this time to prepare for the change and get their systems in order.[3]
With increased scrutiny from the ATO and the Fair Work Commission, it is incumbent on employers to regularly review their payroll compliance, including the correct payment of superannuation obligations.
Payroll compliance is not easy, and companies seeking to ensure they are paying their employees in Australia the right amounts (including calculation and remittance of superannuation guarantee contributions) can ask us about our solution, WTW Pay Comply®, to assess and mitigate risks associated with payroll compliance.
Our dedicated WTW Pay Comply® team combines expertise in industrial relations, actuarial data analysis and remediation, and in particular in-depth knowledge of the superannuation system.
We partner with the right stakeholders across your organisation to reduce the burden on your payroll team and provide holistic guidance to help you avoid time-consuming and expensive underpayment issues.
The content of this article is for general informational purposes only and should not be construed or relied upon as legal or financial product advice. While every effort has been made to ensure the accuracy and reliability of the information presented, laws, regulations and interpretations may vary, and changes may occur over time. Readers should seek professional advice tailored to their specific circumstances as required.
