Senator Nick Sherry has this week announced a review into the superannuation industry, and while there’s been a fair bit of talk about the way commissions are charged on these funds, it’s worth keeping an eye on that other murky subject: super money that employers aren’t handing over.
The last time the media cut sick over unpaid super was two years ago, when Sherry, who was then opposition spokesman for financial services, obtained figures from the ATO revealing what every honest Aussie loves — a good rort.
At a Senate Estimates hearing in May 2007, the ATO revealed that 26,000 employers had not paid employees’ compulsory superannuation payments, potentially affecting up to 364,000 individuals. Outstanding debt had risen from $122.5 million on 30 June 2003, to almost $300 million by 31 March 2007. Complaints to the ATO of unpaid super numbered 13,000 a year.
Since 2007, those complaints have gone up by 55 per cent. The ATO did not have an updated figure on the amount of outstanding debt.
It probably doesn’t come as a surprise to most people. Being diddled out of your super and realising that your legal rights are not inalienable is virtually a proletarian rite of passage.
I myself have had my super withheld twice. Both times I was employed full time, and my employer was contractually obliged to contribute 9 per cent of my income to superannuation. In both instances, I and my fellow employees knew we weren’t being paid, but were worried that if we blew the whistle (a) we could lose our jobs/or favour with the CEO, who was "mates" with everybody, and (b) that if the company did have to pay all that super in arrears, it could go down the plughole.
In both instances, after mild harassment, the CEOs told us they would pay our outstanding super once the company started making money again. Like it was a negotiable extra. And guess what? They didn’t start making money. They folded — and all the outstanding super was lost.
With a recession officially upon us, how many other employers will withhold super to save money? Most people see the super contribution itemised on their pay slips and think that’s proof their employer is paying. Employers, however, pay quarterly, not on the company’s pay cycle. Employees need to check their statements, not their pay slips. But at a time when job security is paramount, how many people who notice a discrepancy may hold back until it’s too late?
You see, once a company is insolvent, any outstanding super is basically cut loose; it’s prioritised below a list of very angry, secure creditors, and will not be chased by the Australian Tax Office (they’ll just give you the address of the people to contact, and leave you to do the rest). This is a common problem with "phoenix" companies, who set up, accrue a heap of debt (eg outstanding super), file for insolvency, then set up again under a different name (sometimes, in the case of my first employer, they even trade under the same name as their technically insolvent predecessor).
While they’re still solvent, however, companies caught withholding super have to pay the super owing, plus interest on that super (10 per cent per annum); they can’t claim the super as a tax deduction, and they cop an administration fee from the Tax Office, which is $20 per employee, per quarter.
Not much of a deterrent, really, when you consider that withholding your super is cheaper than using credit or taking out a bank loan. Which is essentially what offending companies are doing — using your super to run their business. Just last month, the Newcastle Jets were outed for owing their players two quarters’ worth of super — a total of $100,000.
And there’s no difference in the punishments meted out to those who wilfully avoid paying your super, and other companies who just accidentally make a mistake in their calculations.
If you want to dob your boss in, you can ask your super fund to write them a terse letter, but ultimately you’re going to have to get the ATO involved. They are responsible for investigating all complaints (unless you sue the company personally).
In his final year, Howard loosened the tight secrecy girdle on the ATO, which used to prevent it giving any updates to the public on its investigations. It’s much more user-friendly now, as long as you don’t mind waiting a minimum of 340 days for the issue to be resolved.
That’s right — at least 340 days between a complaint being lodged and finalised, even for clear-cut cases. If your employer wants to be a real bastard about it, they can stall the process further by not providing the ATO with the relevant documents, or even force the ATO to take legal action to get them. Problem is, if a company is wilfully avoiding super, they might not be around in 340 days. At which point, your whole claim is moot.
In other cases, the ATO might decide it’s not worth chasing. The ATO stipulates that if the cost of pursuing the unpaid superannuation is higher than the amount owed to you, the case will be dropped. Most unpaid super amounts to only a few hundred or a few thousand dollars, so in many cases, they’ll be overtaken by legal costs pretty quickly. The best way to avoid this is, if possible, to complain on behalf of a number of people, so the ATO can see good, hearty value in it.
But there is some good news. During 2007–08, the ATO looked at more than 20,000 complaints and recouped $381 million in superannuation entitlements for around 210,000 employees. So if you’ve got the patience, it can be worth giving it a go, even if the results do seem like a bit of a lottery.
Unfortunately, that’s the end of the good news, leaving us with still a bit more rort to report. John Birrell, a principal with Maurice Blackman law firm, informs us that while the ATO may chase your unpaid super, and get it back, what it doesn’t chase is your Death and Disability insurance. Death and Disability insurance is provided by most funds, and commonly eventuates in a six-figure lump sum, paid in the event of your death or, um, disabling. But if your super isn’t being paid, and you meet either of these unhappy fates, then you’re not covered. And you get nothing.
Though there are dodgy operators in every industry, sectors that use a mostly casual workforce are the major offenders. The ATO’s 2008–09 Compliance Program recognises the pirates reside mostly in hairdressing and beauty, engineering design and consulting, and building and industrial cleaning. Birrell says that these and similar industries that blur the line between an employee and an "independent contractor" are responsible for super rorts that are the hardest to trace.
"The massive grey area is where you get employers trying to treat staff as independent contractors, not employees. That’s people like courier van drivers and cleaners. Even extreme examples, like kids selling food at the MCG, are treated as independent contractors," says Birrell. "They set up the relationship so they can avoid paying super." Many of these people are actually entitled to their super, but don’t even know to ask.
In general terms, if you’re over 18 and under 70, working more than 30 hours a month and earning more than $450 a month, you should be getting a super contribution of 9 per cent of your wages. If you think your employer is shortchanging you, call the ATO on 13 10 20 or go to www.ato.gov.au/superfunds.
Meanwhile, there’s plenty for Sherry’s superannuation review to look at, if it has the stomach. A couple of very obvious things they could consider would include making it more expensive for companies to withhold superannuation, and imposing harsher penalties where withholding has been clearly deliberate on the company’s part.
And if they felt like giving the ATO the power to make examples of a few really heinous offenders, that’s just the kind of move that would play very well right now.
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