Chapter 2 - The Bill
Background
2.1
The Superannuation Guarantee scheme places an
obligation on employers to contribute a prescribed minimum payment to their
employees' complying superannuation fund or retirement savings account. From 1 July 2003 contributions were to be
made and reported to employees on a quarterly basis.[1]
2.2
The reports to employees must be in writing and contain
details of the contributions made to a fund on a pay slip, letter or email.
They should note the amount contributed, the name of the fund and, if known,
the employee's account number.
2.3
The reporting requirement was, however, opposed by a
number of employer groups who saw the measure as adding unnecessarily to the
administration load faced by employers, particularly those in small business.
On 6 July 2004 the Prime
Minister announced that superannuation guarantee reports would be abolished,
although the contributions would continue to be made by employers.[2]
2.4
The bill repeals section 23A of the Superannuation Guarantee (Administration)
Act 1992 which sets out an employer's reporting obligations for
superannuation contributions. It will apply to contributions made on or after 1 January 2005.
Issues raised in submissions
2.5
The views contained in submissions on this bill were
split between those of employer representatives which expressed strong support
for the bill; and those of the Association of Superannuation Funds of Australia
and the ACTU which opposed the bill and suggested that it should be rejected by
the Senate or, at the very least, that it be amended.
2.6
Explaining the Government's reasons for bringing the
bill forward, the Department of Industry, Tourism and Resources Office of Small
Business (the OSB) advised the Committee that the Government’s Small Business
Council had expressed strong opposition to the reporting requirement; members
of the National Small Business Forum had raised superannuation reporting as a
‘significant concern’; and many key industry bodies including the Small
Business Coalition, the National Farmer’s Federation (NFF) and Catering
Australia had also argued against the need for reporting.[3]
2.7
The substantive concern of those who opposed the bill
is that without compulsory employer reporting, certain groups of employees will
experience a lower level of certainty about their superannuation contributions.
They considered that this will be particularly significant when Choice of Fund
legislation takes effect in 2005. The Committee considers the arguments below.
Monitoring Superannuation Guarantee
contributions
2.8
The Selection of Bills Committee, in particular, asked
this Committee to consider in its inquiry the dangers to workers'
superannuation guarantee payments if there is insufficient reporting to enable
payments to funds to be monitored.[4] The
Association of Superannuation Funds of Australia Limited (ASFA) considers that
quarterly (and preferably monthly) information on an employee's payslip or
other format is required:
-
to provide greater awareness and certainty as to
where superannuation is being paid;
-
to provide a check that the money is actually
being paid; and
-
to assist in the consolidation of 'lost
accounts'.
This information is particularly important for those that
change jobs.[5]
2.9
ASFA considers that the removal of reporting
obligations will allow a number of employers to shirk their Superannuation
Guarantee payments:
While most employers try to do the right thing and pay super
contributions regularly, unfortunately there are employers who use employee
super entitlements for their own cash flow. This deprives employees of the
interest earned, may place their life insurance cover in jeopardy, and puts the
money at risk if the company goes belly up.[6]
2.10
The extent of this problem can only be estimated:
Prior to the 2003 legislation, the ATO had reported that the
groups of employees most affected by employer non-compliance with the Super
Guarantee were contractors, part-time and casual employees, women and those
employed in regional areas. At present, around 10,000 employees a year report
to the ATO a possible non-payment of super by their employer or ex-employer. It
has been suggested that this is only the tip of the iceberg, since many workers
are unaware of their employer's non-compliance. The ATO has estimated that is
has pursued errant employers for more than $100 million in super
entitlements that have not been paid.[7]
2.11
However, employers see the compliance burden associated
with reporting as excessive. According to the National Farmers' Federation
(NFF) and the Australian Chamber of Commerce and Industry (ACCI) the reporting
requirements have imposed significant burdens on employers and substantially
increased compliance costs:
Since the requirement for employers to notify employees was
introduced, farmers particularly in the horticultural industry, have inundated
NFF with complaints about the difficulties associated with compliance.[8]
2.12
Employer representatives argue that in the case of
industries where there is a high casual or itinerant workforce, employers face
difficulty in locating those employees to meet the reporting obligation,
particularly if the employee leaves no forwarding address.[9] On the same theme, Restaurant and
Catering Australia claimed that business in this sector estimated that up to 80
per cent of notifications may be returned.[10]
2.13
The ACCI estimated that the reporting requirement has
meant that about 20 million individual and repetitive notifications have
been produced every year by Australian employers:
Notices even have to be given to staff who have left a business
or who are itinerant workers. That is red-tape overkill.[11]
2.14
The OSB explained what is involved for employers as
follows:
It has been estimated that employers would spend 15 minutes per
employee meeting the quarterly report requirements. The costs for the employer have been
calculated to be approximately one hour and $50 per annum per ongoing
employee. There are additional costs
where the employer decides to purchase payroll upgrades that facilitate payment
or other new systems.
It is our understanding that there are very few payroll systems
in Australia that
can notify the employee after the superannuation contribution has been
made. Therefore, reporting in many
instances has to be manually generated.
Payroll systems are currently set up to provide this detail on the
payslip, which is generally sent to the employee before the payment is
made. Software manufacturers are seeking
to incorporate this function into future programs, however this will involve a
cost to the employer. Further, this does
not solve the problem for the many small and micro businesses that do not use
electronic payroll systems.[12]
2.15
The OSB also pointed out that requiring the employer to
make a report does not necessarily guarantee that a contribution will actually
be made. The OSB stated that small business had argued that the only real
guarantee that contributions had been made was the confirmation provided by the
superannuation funds in their annual reporting to their members.[13]
2.16
The Committee notes that many employers report more
frequently than quarterly by including superannuation contribution information
on payslip advices. This obligation is contained throughout various Australian
workplace legislation as well as State and Federal awards[14] and will not be affected by the bill.
2.17
However, not all employees are covered by awards or
agreements, and not all awards specify that information about the amount of
superannuation actually paid is to be provided. According to ASFA, the existing
statutory requirement to report contributions paid is needed to 'level the
playing field' both for employers in relation to their compliance obligations
and for employees in relation to their rights.[15]
Further, the ACTU submitted that the requirement for employers to provide
relevant information quarterly, at least where it is not already provided
through payslips, is a necessary corollary to quarterly contributions.[16]
Choice of superannuation fund
2.18
From 1 July
2005 many employees will be able to choose into which
superannuation fund their payments will be made. ASFA considers that the move
to abolish employer reporting is contradictory to the spirit of choice, which
is supposed to be about giving employees more control over their
superannuation.[17] Submissions were
concerned that the introduction of choice of fund gives additional significance
to the need for employees to be able to check that contributions are made, and
to whom they are made.[18]
2.19
Generally, many employees do not have a good
understanding of or interest in superannuation. ASFA argues that the reporting
obligation is a form of employee education as it is quite likely that an
employee will take more notice of information about what the employer is paying
to a fund on their behalf when it is associated with current entitlements to
salary and wages. It is perhaps more difficult for fund communications to claim
this level of attention.[19]
2.20
However, the ACCI considers that the change in employer
reporting requirements may mean that some employees liaise more directly with
their superannuation fund, which it considers to be a desirable outcome in
relation to the introduction of choice of fund:
With superannuation choice of fund to be introduced in mid 2005
employees will be better off [if] they have already been pro-active in dealing
with their superannuation fund. Many employers will have new paperwork
obligations at that time, and the repeal of this unnecessary quarterly
notification requirement will be timely.[20]
Possible amendments
2.21
Both ASFA and the ACTU, while preferring that the
measure remain in place, suggested possible compromise positions. For example,
the Association of Superannuation Funds of Australia Limited (ASFA) stated in
its submission that:
An alternative option not canvassed in the preparation of the Bill
is that of making minor changes to accommodate specific difficulties. As
employers are currently required to annually report details of income to these
employees for taxation purposes, why not permit the SG reporting to be combined
with tax reporting for this class of individuals.
A quarterly reporting exemption might also be given to an
employer where the employee has left no forwarding address. In that situation
the obligation could be [waived] or aligned with the income tax reporting
requirements.[21]
2.22
The ACTU also suggested amending the bill to exempt
employers from providing quarterly information if both contributions and fund
are specified in regular payslips:
The ACTU submits that the Bill
should be rejected by the Senate or, at the very least, that it be amended to
provide that quarterly information must be given by the employer to the
employee unless both contributions and fund are specified in regular payslips.[22]
2.23
The brevity of the Committee’s inquiry has not allowed
these suggestions to be explored and the Committee has not agreed on any
position in relation to them. However, the Committee has included them in this
report for the Senate's consideration, should amendments to the bill be
contemplated.
Conclusions and Recommendations
2.24
The Committee notes that the reporting requirement was
introduced ‘with the good intention of supporting the administration of the
Superannuation Guarantee system by encouraging employer compliance through the
early identification of non-compliance and enhancing employees’ sense of
ownership over their superannuation accounts’.[23]
2.25
Further, when the reporting requirement was introduced,
the Minister for Revenue and Assistant Treasurer, in the second reading debate,
said that the measures 'will encourage employees to take an interest in their
superannuation and alert them to any non-compliance sooner'.[24]
2.26
While these are commendable objectives, they must be
balanced against their practicality and the compliance burden they impose.
Strong representations have clearly been made to the Government that the
quarterly reporting requirement imposes an extra compliance load on some employers
which they consider unacceptable. Further in the case of workers who leave no
forwarding address following short term employment, sending reports may be
futile.
2.27
The Committee also notes that the Government had
committed itself to removing this reporting requirement prior to the election.
2.28
It is possible that if this bill is passed, there will
be some reduction in the amount of information available to employees
concerning the superannuation contributions made on their behalf by employers.
However, reporting of contributions made will still be available to employees
through the requirement for funds to report annually on payments received. This
form of reporting has greater integrity than employer advices, as it records
the payments actually made.
The Committee recommends that the bill be passed without
amendment.
Senator
George Brandis
Chair