Australian workers, who collectively miss out on more than $2.8 billion a year in superannuation payments, should see the gap narrow as regulators and trustees track real-time payments from July 1, 2018.

Industry Fund Services (IFS) chief executive Cath Bowtell says single-touch payroll (STP) is a “very positive step” that will help the Australian Taxation Office act on late payments from big businesses.

IFS represents 11 industry funds, which it helped claw back $192 million  in employer payments, for almost 300,000 workers, during the 2014-15 financial year. But STP will not solve the problem entirely, Bowtell says.

The ATO estimates $2.85 billion, or 5.2 per cent of the annual $54.78 billion in superannuation guarantee obligations, were not paid to employees in 2014-15.

Research led by Industry Super Australia adviser Phil Gallagher concluded the problem is even worse, estimating that workers are shortchanged by up to $5.6 billion annually.

The new STP rules will apply to businesses with more than 20 employees from July 1 this year and for smaller businesses from July 1, 2019. Information will be provided to the ATO in real time when wages are paid to employees. This will provide a more clear record of when super payments are late.

“That will give the tax office a lot of visibility,” Bowtell says. “We think about it in terms of an opportunity for trustees to engage with employees and for early intervention. The earlier you pick up the amount owing, the [greater] likelihood the amount will be paid.”

She says many small businesses will voluntarily join the STP process through using payment software such as Xero and MYOB, which will embed the functionality.

Salary-sacrificers missing out

One problem an interagency report highlighted in July 2017 was that many businesses were not meeting their full obligation to employees who were salary-sacrificing payments into their super balances.

The loophole, not believed to be widespread, shows workers may unwittingly be reducing what their employer contributes by being proactive savers.

Current superannuation law does not distinguish between business’s payments and workers’ own super contributions, meaning some businesses count workers’ salary sacrifices as part of their 9.5 per cent obligation, shortchanging employees.

For example, an employee sacrificing 9.5 per cent of their $100,000 salary would reduce the salary on which their employer calculates their obligations to $90,500, clipping almost $1000 off the minimum required super guarantee contribution – dropping it from $9500 to $8598.

Bowtell says that while regulators have previously focused on unpaid super, her organisation was putting the onus on trustees to become more active in helping their members.

“Traditionally, trustees have really focused only on…where there’s been late payment, and it is now focused on underpayment,” she says. “We’re working with a number of funds to identify underpayment…We’re working on various communications strategies.”

IFS employs 54 people to act on behalf of members, to take back an average $500 owed to each member a year. It has about 600 cases solved through litigation each year.

Advocate for contractors

Bowtell says there is still some work to be done educating both employers and workers about sham contracting.

“What we do know through the work we’ve done is there are a lot of people who are employed on a contract for labour and they are covered for the superannuation guarantee…There’s a lack of awareness that some contractors are covered,” she says. “[Even at] large, sophisticated employers.”

The shortchanging by employers has a variety of causes, including company insolvency and the cash economy. Some are accidental, some are by design.

Industry Super Australia estimates a $2000 underpayment on an employee’s super can grow to a $24,000 shortfall in investment returns by retirement, and such losses cost the federal government an extra $100 million annually on its aged pension bill.

Cath Bowtell spoke to Investment Magazine ahead of delivering an address titled ‘It’s time to tackle unpaid super’, at the upcoming Australian Institute of Superannuation Trustees Conference of Major Superannuation Funds (CMSF) 2018,  in Brisbane on March 14-16. 

READ MORE: All the coverage from CMSF 2018