Super is broken and HR needs to help fix it


On Monday, Industry Super Australia released a report detailing how employers failed to pay an astounding $3.6 billion in compulsory superannuation contributions in 2013-14. At least 2.4 million Australian workers were underpaid an average of about $1,500 of their super in that financial year. The reasons for how and why the system is being undermined are many, but include negligence and outright corruption. What can HR professionals do to help set things right?

Under Australian law employers are obliged to contribute a minimum of 9.5 per cent to the super accounts of all workers who earn over $450 a month. The system was put in place in 1992 to ensure Australia’s economy remains robust in the face of an aging population, and ever changing global financial conditions.

Unfortunately, the system is not well understood and can be confusing. The onus to ensure appropriate payments are being correctly lodged falls mostly on individual employees who, on average, have a low level of financial literacy and suffer from a severe information imbalance with the organisations for which they work.

Combine this with an under-resourced Australian Tax Office that fails to rapidly follow up complaints about unpaid super and you have the perfect conditions for unethical businesses to achieve an unfair advantage.

“It is not unusual to hear from members who have lodged a complaint with the ATO still waiting for answers, let alone their money, years afterwards,” Cbus Chairman Steve Bracks, told the Sydney Morning Herald. “Employers who do the right thing by their employees are competing on an uneven playing field against those who don’t.”

The problem might even be worse than the report estimates. The authors draw attention to a loophole that allows a worker’s voluntary salary sacrificing to reduce their employer’s required super contributions. This is often a beneficial and transparent arrangement but when it’s abused, the loophole means those workers who are most diligent about saving for retirement might not realise what’s happening and end up exploited. The report’s authors believe that if the the amount of estimated unpaid super for 2013-14 included the salary sacrificing loophole it  would be $1 billion higher.

What HR can do to help

According to the report, small and medium-sized businesses are the least likely to pay their Superannuation Guarantee (SG). So, other than keeping good records and streamlining your superannuation process, how do you ensure you’re maintaining superannuation compliance?

Firstly, paying superannuation regularly is best practise.  It avoids the risky scenario of having unpaid obligations hanging around, and the temptation for the organisation to use that money for something else.

“Small businesses and cash-constrained businesses can accumulate superannuation contributions over a three to four month period and that amount sits in their balance sheet as a liability but the cash is in their bank account,” explains Ben Thompson, employment lawyer and founder of payroll platform Employment Hero. “So some businesses will incorrectly use that accumulation as working capital. And if things go wrong then those payments aren’t being made. That’s a legal problem.”

Secondly, make sure all superannuation conversations are transparent. Your employee should understand all salary sacrificing legislation before you encourage such an arrangement.

Finally, Thompson recommends getting ahead of coming changes in technology. As of July 2017 single-touch payroll (STP) will be available but from July 2018 it will become compulsory for businesses with more than 20 employees. This system reports super contributions automatically to the ATO, making it harder for rogue businesses to get away with bad practice.

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Leigh Greig
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Leigh Greig

I can see the sense in all the comments above and great to see HR folks having a say on what I think will more than a “watch this space” topic. As I was thinking about my comment, Catherine took the words right out of my mouth – well said Catherine. HR and Finance have a definite link and must work together. With all due respect to accounting staff, they don’t have the skills to interpret the Awards etc and are often the first port of call for employee queries and often take the brunt of upset employees. HR can… Read more »

Dan Erbacher
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Dan Erbacher

The comments above re the frequency of superannuation payments is correct. Current legislation allows employers to make the payments quarterly if they desire. This legislation needs to change. In my view it is unfair to withhold employees’ superannuation for 3 months – that is a long period of time in which that money is idle instead of the employees being allowed to invest it and generate earnings

Kathy Mestre
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Kathy Mestre

I’m a little late to the party ….
With the introduction of Single Touch Payroll hopefully this will resolve this problem.

Regardless of whether payroll sits under Finance or HR, staff handling payroll should be fully trained in all areas of payroll related legislation. I think this is one of the biggest issues at the moment – organisations are hiring people who have either not been trained in Payroll, or have an accounting background. Its time to start hiring people with the appropriate skills – we wouldn’t hire someone to work in the Legal area without any sort of qualifications….

More on HRM

Super is broken and HR needs to help fix it


On Monday, Industry Super Australia released a report detailing how employers failed to pay an astounding $3.6 billion in compulsory superannuation contributions in 2013-14. At least 2.4 million Australian workers were underpaid an average of about $1,500 of their super in that financial year. The reasons for how and why the system is being undermined are many, but include negligence and outright corruption. What can HR professionals do to help set things right?

Under Australian law employers are obliged to contribute a minimum of 9.5 per cent to the super accounts of all workers who earn over $450 a month. The system was put in place in 1992 to ensure Australia’s economy remains robust in the face of an aging population, and ever changing global financial conditions.

Unfortunately, the system is not well understood and can be confusing. The onus to ensure appropriate payments are being correctly lodged falls mostly on individual employees who, on average, have a low level of financial literacy and suffer from a severe information imbalance with the organisations for which they work.

Combine this with an under-resourced Australian Tax Office that fails to rapidly follow up complaints about unpaid super and you have the perfect conditions for unethical businesses to achieve an unfair advantage.

“It is not unusual to hear from members who have lodged a complaint with the ATO still waiting for answers, let alone their money, years afterwards,” Cbus Chairman Steve Bracks, told the Sydney Morning Herald. “Employers who do the right thing by their employees are competing on an uneven playing field against those who don’t.”

The problem might even be worse than the report estimates. The authors draw attention to a loophole that allows a worker’s voluntary salary sacrificing to reduce their employer’s required super contributions. This is often a beneficial and transparent arrangement but when it’s abused, the loophole means those workers who are most diligent about saving for retirement might not realise what’s happening and end up exploited. The report’s authors believe that if the the amount of estimated unpaid super for 2013-14 included the salary sacrificing loophole it  would be $1 billion higher.

What HR can do to help

According to the report, small and medium-sized businesses are the least likely to pay their Superannuation Guarantee (SG). So, other than keeping good records and streamlining your superannuation process, how do you ensure you’re maintaining superannuation compliance?

Firstly, paying superannuation regularly is best practise.  It avoids the risky scenario of having unpaid obligations hanging around, and the temptation for the organisation to use that money for something else.

“Small businesses and cash-constrained businesses can accumulate superannuation contributions over a three to four month period and that amount sits in their balance sheet as a liability but the cash is in their bank account,” explains Ben Thompson, employment lawyer and founder of payroll platform Employment Hero. “So some businesses will incorrectly use that accumulation as working capital. And if things go wrong then those payments aren’t being made. That’s a legal problem.”

Secondly, make sure all superannuation conversations are transparent. Your employee should understand all salary sacrificing legislation before you encourage such an arrangement.

Finally, Thompson recommends getting ahead of coming changes in technology. As of July 2017 single-touch payroll (STP) will be available but from July 2018 it will become compulsory for businesses with more than 20 employees. This system reports super contributions automatically to the ATO, making it harder for rogue businesses to get away with bad practice.

9
Leave a reply

avatar
100000
  Subscribe to receive comments  
Notify me of
Leigh Greig
Guest
Leigh Greig

I can see the sense in all the comments above and great to see HR folks having a say on what I think will more than a “watch this space” topic. As I was thinking about my comment, Catherine took the words right out of my mouth – well said Catherine. HR and Finance have a definite link and must work together. With all due respect to accounting staff, they don’t have the skills to interpret the Awards etc and are often the first port of call for employee queries and often take the brunt of upset employees. HR can… Read more »

Dan Erbacher
Guest
Dan Erbacher

The comments above re the frequency of superannuation payments is correct. Current legislation allows employers to make the payments quarterly if they desire. This legislation needs to change. In my view it is unfair to withhold employees’ superannuation for 3 months – that is a long period of time in which that money is idle instead of the employees being allowed to invest it and generate earnings

Kathy Mestre
Guest
Kathy Mestre

I’m a little late to the party ….
With the introduction of Single Touch Payroll hopefully this will resolve this problem.

Regardless of whether payroll sits under Finance or HR, staff handling payroll should be fully trained in all areas of payroll related legislation. I think this is one of the biggest issues at the moment – organisations are hiring people who have either not been trained in Payroll, or have an accounting background. Its time to start hiring people with the appropriate skills – we wouldn’t hire someone to work in the Legal area without any sort of qualifications….

More on HRM