Adding Superannuation to the National Employment Standards (NES)

The federal government has proposed legislation to amend the Fair Work Act (FW Act) that would provide improved rights and enforceability of existing superannuation entitlements as required under the existing Superannuation Guarantee Charge Act (SGC Act). It is called the Fair Work Legislation Amendment (Protecting Worker Entitlements) Bill 2023 and is due to be introduced to federal parliament soon and the government is effectively warning employers that they must pay superannuation for employees on time or face big penalties!

The Fair Work Act incorporates the National Employment Standards (NES) which outline fundamental rights of employees if they are covered by the FW Act and the proposed changes to include superannuation provides a bigger stick for enforcement agencies to ensure compliance and gives employees more options to pursue action.

Why the change?

It comes off the back of years of lobbying by industry super funds and unions to increase the enforceability of the SGC Act which has seen billions of dollars of unpaid entitlements, with the ATO estimating that $3.4 billion was lost from workers in 2019-2020 alone. In the years since the SGC Act was passed in 1992, the industry super sector has been increasingly vocal on the issue, more often occurring where those employees are low-paid or in a more vulnerable position. Some high-profile cases have seen a few employers repeatedly avoid penalties for non or late payment due to limited ATO resources and many more have used the system to help them manage cash flow with what the superannuation industry says is ‘employee’s entitlements’.

The legislation does not change the entitlements outlined in the SGC Act, so there is no additional cost to employers, simply an increased obligation to pay and pay on time and a consequent increase in the remedies and penalties that can be sought from the ATO and additionally from the Fair Work Ombudsman (FWO) or civil legal action.

This change also increases the number of employees covered by the Fair Work Act, specifically those employees not covered by a modern award or enterprise agreement, who will have an enforceable right to superannuation. These rights can then be pursued by unions, a Fair Work Inspector and not just the ATO, as it currently stands.

Any suspected under or non-payment will allow employees to take direct legal action, will allow the FWO to refer matters to the ATO and in some cases allow the FWO to pursue unpaid super payments alongside the ATO.  However, civil legal action cannot proceed if the ATO has the matter under investigation. The process also increases the right of employees to information during the investigation process which can often take 12 months or more for the ATO to complete.

The current SGC Act provides obligations to make payments at least quarterly into a nominated fund (or default fund if not nominated). These obligations won’t change; however, employers will need to ensure that their payroll staff, systems and processes are brought up to date with obligations or risk big fines if they are even one day late. By bringing these changes under the umbrella of the Fair Work Act employers are open to bigger fines for civil breaches with $82,500 for companies and $16,500 for individuals. ATO fines will start at 200% of the unpaid amount, there will be an interest charge for late payments and the ATO will have virtually no discretion on penalties.

The government is also planning to increase ATO enforcement resources so it is expected there will be a greater focus by the ATO and this will no doubt be promoted heavily by employee associations and super funds.

For those employers who use a superannuation clearing house to make super payments it means that adjustments may be needed to ensure that the clearing house is allowed enough time to forward the contributions to the ATO by the deadline. The relevant deadline is assessed on when the monies reach the ATO. The only exception is if the clearing house is the ATO small business superannuation clearing house which is considered part of ATO.

So, in addition to the SGC rate increases due for this year on 1 July from 10.5% to 11.0% (with two more 0.5% increases due in the next two years until we reach 12.0% in 2025), employers are also advised to take note that by 1 July 2026 the current government has plans to ensure that all superannuation payments are paid on the date of the existing payroll. That means paying super fortnightly or monthly, and also potentially weekly for some. These changes were outlined in this years’ federal budget and are designed to provide advance warning to software developers and payroll providers, so they have ample time to prepare for the change in payment frequency.

Written By Philip Mather