Research released in 2018 by Industry Super Australia (ISA), the peak body for the industry superannuation sector, suggests that super theft costs Australian workers $5.9 billion each year and affects nearly 3 million people, or over one in three workers.
As the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry asked, how do well-resourced enterprises embed mistakes in the super payments system for years without detection and neglect to pay millions of dollars in legal, enforceable superannuation?
For instance, a major source of super underpayment is the practice of counting salary sacrifice as the employer super guarantee contribution. And because businesses are not required to pay super at the same time as wages, these entitlements can disappear if the business goes belly-up before the payments are made.
The cost to employers
There’s far more than money at risk when there’s a failure to adequately detect and address super guarantee non-compliance.
For the Commonwealth of Australia, many individuals do not have adequate savings support themselves during retirement. Add to this an aging population, and the burden put on the Age Pension is exacerbated by super underpayments.
Underpayment of superannuation contributions can be costly for employers too. An mistake leading to an underpayment must be disclosed to the Australian Taxation Office (ATO), and there will be extra payments in admin fees and interest on the repayment.
The potential damage to organisational reputation and morale – regardless of whether a non-payment was accidental – can far outweigh any financial penalty. It can undermine business development and recruitment prospects, and more widely harm the expectations and support give to legitimate businesses by investors, employees, the community and regulators.
Beyond deliberate theft, or misappropriation of entitlements, many super underpayments are happening because of misinterpretation of the various legislation, awards, agreements, regulations and contracts governing each employee.
Sources of super compliance issues include:
- APRA and ASIC
- SuperStream Reporting
- Choice of Fund
- Default funds
- Clearing houses
In summary, super payments need to be paid on ordinary earnings plus any bonuses or commissions. Super does not need to be paid for overtime, but is required for the equivalent of overtime rates – which are in effect two different pay codes. Getting these items confused lead to superannuation underpayment.
Use technology to streamline compliance
Australia’s $2.5 trillion superannuation industry facilitates a complex web of payments, which can be affected by misdirected payments, or delayed or lost super payments.
Even so, increased investment in technology and data management is creating real-time integration of funds, members and employers making contributions. At a fundamental level legislative changes like mandatory STP integration has been a massive change for Australian employers, who can now expect increased scrutiny from the ATO in the form of streamlined assurance reviews.
Another service being disrupted are the traditional clearing houses for super and payroll payments that sit between the employer and their financial institution. Rather than put the burden of compliance on the employer, the Beam platform from Sunsuper connects super payments to a range of payroll and HR providers’ software through an Application Programming Interface (RESTful APIs) to radically reduce support and compliance costs.
Keeping your payroll and superannuation compliant requires constant vigilance. After you’ve remediated any underpayment issues, you should implement any corrective actions identified in your post-incident review and continually perform audits – ideally audits can be regularly scheduled, or at the very least performed when entitlements change.
If it’s a challenge keeping full-time experts in your business trained and up to date with legislative changes, you should consider outsourcing your payroll to avoid the risk of underpayment. Outsourced payroll is for those who usually have their own in-house payroll service, in the mid and small-market, and for those who want the extra level of reassurance and responsibility.
Read next – Treating the Wage Restitution Tax Headache: YOUtax Director and Senior Accountant Emma Baxter shares her insights into employee tax planning services for remediation payments.
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