Here we explain how ‘super stapling’ works and the steps employers need to take to ensure they comply with the new rules.
- The stapled fund rules only apply to new employees who commence work on or after 1 November 2021.
- Superannuation clauses in employment contracts will need to be updated for new employees to refer to the possibility of contributions being made into an employee's stapled fund.
- The new rules also potentially vary the current position that choice does not have to be offered to new employees covered by a pre-1 January 2021 enterprise agreement – but this is a complex area.
From 1 November 2021, employers will need to change their onboarding and payroll processes to comply with the new ‘super stapling’ requirements
What is ‘super stapling’?
Under the current ‘default’ superannuation system, where an employee commences employment with a new employer and does not choose a superannuation fund into which their super contributions will be paid, their contributions are paid to a default ‘MySuper’ product selected by their employer. This means that a person who changes jobs and does not exercise choice of fund will typically have more than one superannuation account.
However, under the ‘super stapling’ reforms, where a person moves jobs their existing superannuation account will be ‘stapled’ to them, meaning that their new employer must pay contributions into the ‘stapled fund’ unless the member chooses for their contributions to go to a different fund.
'Super stapling' is part of a package of reforms to the superannuation system announced in the 2020 Federal Budget and are aimed at tackling the problem of unintended multiple accounts eroding the retirement savings of Australians. The ATO estimates that there are approximately 6 million unintended multiple accounts in the super system charging $450 million in fees.
What does this mean for employers?
When a new employee commences on or after 1 November 2021, and they do not exercise choice of fund, the employer will need to check if the employee has an existing stapled fund. This is done by logging into ATO online services and providing some basic information about the employee.
Generally, if the employee does not exercise choice and has a stapled fund, the employer will be required to contribute to the employee’s stapled fund to meet their Superannuation Guarantee (SG) obligations.
Are existing employees affected?
No, the stapled fund rules only apply to new employees who commence work on or after 1 November 2021.
What if an industrial instrument (eg a modern award or enterprise agreement) states that I must pay super to a specific fund?
Broadly, employers will need to comply with the new 'super stapling' rules and will breach their SG obligations by paying to the default fund specified in the award or workplace agreement. However, and importantly, there are a number of exceptions. Most relevant, if an enterprise agreement, or a workplace determination, was made before 1 January 2021, the rules are more complex and difficult to navigate, but may require choice to be offered to new employees covered by these instruments. In these circumstances, whether or not the employee is entitled to choice of fund will depend on whether or not they have a stapled fund.
How do I work out if an employee has a stapled fund?
Employers will need to log into ATO online services and enter the relevant employee details to request information on the employee's stapled fund. An employer will need to have lodged either a Single Touch Payroll event or a Tax file number declaration for the employee to make the request (bulk requests can be made if you have over 100 new employees starting at once (eg this might be relevant where acquiring a new business)).
What if the employee already has multiple super accounts?
The good news is that neither the employer or employee has a role in determining which superannuation account is the employee’s stapled fund. The ATO is required to determine this, applying certain ‘tiebreaker’ rules set out in the legislation. Generally, the stapled fund will be the fund that the employee last received contributions into, but this will not always be the case. Importantly, employers must ensure they always check the ATO portal to determine which fund is the employee’s stapled fund and not rely on other information (such as the employee telling the employer which fund they think is their stapled fund).
If an employee uses the Standard Choice Form to choose a fund, is an employer required to request stapled fund details from the ATO?
No. If an employee exercises choice of fund, an employer has no obligation to request details of their stapled fund from the ATO.
What about contractors?
These rules will apply equally to a person who works under a contract that is wholly or principally for the supply of their labour – in this case, the person is considered and treated like an employee under the SG regime.
What if a stapled fund does not accept a contribution?
This is a particularly tricky issue. As a starting point, if a stapled fund rejects a contribution, the employer will be taken not to have satisfied their SG obligations. The ATO has discretion to reduce an employer’s individual superannuation guarantee shortfall in these cases but this discretion is not automatically applied and may not be applied at all if the employer does not pay the rejected contribution to another fund in a timely manner. Employers will need to ensure that they have processes to identify rejected contributions and act on them promptly.
Can I discuss participation in my default fund with new employees?
Whilst ‘super stapling’ may prevent an employee from having multiple accounts, in some cases being in a stapled fund may not be in an employee’s interests. An employee's stapled fund may have higher fees once they leave their original employer, and they may not be insured or be underinsured in that fund. An employee's insurance cover may also cease or become more expensive when they change jobs. Employers can continue to provide information about their default superannuation fund offerings and will wish to do so particularly where the default fund offer provides additional benefits (such as discounted or subsidised fee arrangements – see below). Employers need to take care with their communications though, to avoid providing financial product advice to employees.
Do I need to make changes to my default super arrangements?
Possibly. Whilst default super contributions will only be paid to an employer’s chosen default fund in limited circumstances in the future, employers will need to consider how super stapling may impact participation agreements with default funds. For example, where the default fund offers fee discounts or tailored pricing which is conditional upon a certain percentage of employees being in the default fund, such arrangements could be adversely impacted by super stapling.
Do I need to make changes to my employment contracts?
Yes, for new employees commencing on or after 1 November 2021. Current superannuation clauses will need to be updated to refer to the possibility of contributions being made into an employee's stapled fund.