Many Australian employees are unaware that at some time in the past 26 years, they could have worked for an employer who either underpaid their compulsory superannuation guarantee (SG) contributions (currently 9.5% of Ordinary Time Earnings), or worse didn’t pay super at all.
However, the good news is the Government is now cracking down on any super ever left unpaid to Australian workers.
This means the super balances of your employees could benefit from an unexpected boost.
Recent research suggests that up to 2.76 million Australian’s are owed over $5.6 billion in unpaid super. In response to this revelation, the Federal Government is proposing an SG amnesty - actively encouraging employers to review, identify and disclose SG underpayments, and then pay up. The amnesty will run over the next 12 months, and employers who have been non-compliant can pay their outstanding SG contributions (plus interest) without penalty. Those who don’t may face higher financial penalties in the future.
12-month amnesty now in play
To encourage employers to voluntarily disclose and pay unpaid amounts in full without penalty, on 24 May 2018 the Federal Government introduced a 12-month one-off amnesty period which ends 23 May 2019 (subject to the passage of legislation). A full reduction in penalties on any historical SG shortfalls should strongly encourage employers to come forward while the amnesty is still running.
However, while employers that ‘make good’ on their SG shortfall during the amnesty will receive full tax deductibility of the contributions made, they will still be required to pay a nominal interest component on previously unpaid super contributions, as well as any associated general interest charge. This can be paid directly to the employee’s super fund, however employers who are unable to pay the SG shortfall in full can also contact the ATO to set up a payment plan.
There are serious financial penalties proposed for employers that refuse to meet their SG obligations on time. For example, there will be a minimum penalty of 50 percent [of the outstanding SG amount] on employers who could come forward during the amnesty period, but choose not to.
The Minister for Revenue and Financial Services, Kelly O’Dwyer has also stressed the possibility of up to 12 months jail for employers who fail to meet their SG obligations.
Any spike in your balance won’t come back to bite
Most employees are likely to be unaware of ever being underpaid by any previous employers on their SG contributions. The onus is now on non-compliant employers to initiate a super review that focusses on payroll system mapping, supporting processes and any super-related controls around the payroll function. However, your employees might want to keep a close eye on their super balance over the next 12 months for spikes in their super balance.
Your employees who do notice a spike in their super balance needn’t worry about breaching any concessional contributions cap. Ancillary amendments contained within the SG amnesty means that employees impacted by SG underpayments will not be disadvantaged by any lump-sum payments made specifically to address an employer's historical non-compliance.
While the Commissioner has discretion to disregard excess contributions paid as a result of the amnesty, some employees will need to apply to the Commissioner to obtain the relief. Where an employer pays the missing SG amount to the ATO, the employee will not need to apply for the Commissioner's discretion. However, if the employer pays the catch-up SG direct to the employees super fund and that causes them to exceed the caps, the employee will need to apply to the ATO for relief.
Less SG non-compliance going forward
To avoid unintentional errors when setting up pay codes in the payroll system or changing payroll systems, the Federal Government has aligned the amnesty period with the introduction of a Single Touch Payroll (STP) - this will make it as easier for employers to comply with their SG obligations.
When STP kicks in fully next year, the Australian Taxation Office (ATO) will have real-time data on employers who are behind in their SG payments. Given that the penalty for not paying on time is harsh, employees (regardless of their employer) are more likely than ever to have their SG obligations met.