As an employee how often do you check that your employer is paying your superannuation on time? Would you know how many months your employer might be in arrears? What if you knew that your employer was using your superannuation guarantee ("SG") contributions (being 9.5% of your relevant remuneration) to assist in the cashflow of their business? Did you know that the number of employers who lodged SG charge statements increased 60% from the preceding financial year (the total number being approximately 17,700)?
For some-time now (infact since 2009), the Federal Government and the Australian Taxation Office ("ATO") have been targeting non-compliance with superannuation guarantee ("SG") obligations. Such initiatives are unlikely to slow down any-time soon and directors need to ensure that they "play by the rules" in order to avoid personal liability which has recently been further extended. The SG obligation is not the employer's money in the first place - it is part of the employee's remuneration package.
As an Insolvency Practitioner, I frequently see situations where employees are completely in the dark about how much they are out of pocket for unpaid SG contributions. Whilst such amounts are priority claims under the Corporations Act and Bankruptcy Act, in many instances there are simply not enough recoveries made to enable these priority claims to be paid. Whilst there is a Federal Government scheme (known as FEG) to cover employee entitlements where an employer becomes insolvent (ie liquidation / bankruptcy), such scheme only seeks to cover items such as unpaid wages, leave entitlements and redundancy. It does not cover SG contributions.
Whilst for many employees access to superannuation benefits may be many years away, with all the easy ways to access account details (ie mobile, desktop etc), there is really no excuse to not know where your superannuation is at during your employment.
Under the current superannuation regime employers must:
- Pay the SG at least four (4) times a year, by the quarterly due dates;
- Pay and report the SG electronically in a standard format, ensuring they meet the Superstream requirements;
- Ensure the payments go to a complying super fund; and
- If they don't pay the SG on time, they may have to pay the SG charge.
What's changed for directors?
1. Firstly, back on 29 June 2012 the Director Penalty Notice ("DPN") regime was extended to include personal liability of directors for unpaid SG charge amounts. Prior to this date, the DPN regime only enabled directors to be personally liable for unpaid Pay-As-You-Go ("PAYG").
2. Also on 29 June 2012, an additional change was made whereby if the underlying PAYG or SG charge remained BOTH unreported and unpaid for more than three (3) months after the due date, then there was no relief from personal liability by placing the company into Voluntary Administration or Liquidation - in other words the penalty was "locked down" to the director and they could not avoid it.
3. Specifically, where the company has not paid the SG charge by the 28th day after the end of each quarter, it is required to lodge an SG charge statement by the 28th day of the following month. For example, the lodgement date for the June quarter SG charge statement would be 28 August with personal liability arising from 28 November.
4. Legislative amendment from 1 April 2019: this provides that a director penalty regarding unpaid superannuation will now be "locked down" as soon as they are incurred - thus addressing the mischief where directors were able to wait just before the "lock down" date to place their company into Voluntary Administration or Liquidation so that they could avoid personal liability. Using the dates in point 3 above, such liability will now result as at 28 August, as opposed to 28 November.
This measure applies to amounts arising on or after 1 July 2018.
Also, the amended legislation provides the ATO with powers to pursue criminal penalties for serious contraventions of employer superannuation obligations including potential jail time for directors that employ staff. Prior to the change, the law only enabled the ATO to collect financial penalties including the SG charge and interest from the director.
What's down the track for directors?
Further draft legislation before Parliament under the banner of combatting illegal phoenixing had not been passed at the time of writing but seeks to extend the DPN regime whereby directors can also be held personally liable for outstanding GST debts of the company. It remains uncertain how and within what timeframe such draft legislation may be reintroduced into Parliament after the Federal Election, however it is something to be aware of. I will be closely following re-introduction of this draft legislation.
The ATO in many corporate insolvencies is a significant creditor and clearly is desirous of ensuring that it can maximise revenue collections.
What should company directors do?
Directors should ensure that they are familiar with the DPN regime and the personal liability that may potentially stem from not reporting and paying within due dates PAYG, SG contributions and into the future potentially, GST debts.
At a minimum, you should ensure that you are aware of and report the company's obligations by the due dates.
If the company is experiencing cashflow or liquidity problems, seek advice at the earliest opportunity possible. Also new directors need to be even more vigilant regarding the level of due diligence conducted by them prior to agreeing to be appointed as an incoming director to a company (ie after 30 days from being appointed) as you will be on risk for any unpaid PAYG and SG contribution amounts.
Also, with Single Touch Payroll on the way for small businesses (and already in place for larger businesses), employers should take the time to ensure that they are reporting and paying employees SG contributions on time to avoid potential personal liability. With Single Touch Payroll and other data matching tools becoming increasingly available to the ATO, it is likely that they will be able to assess and make determinations more swiftly regarding recalcitrant employers.