As part of the increased focus on superannuation guarantee (SG) non-compliance, the Government announced that it will legislate so that an employer cannot reduce their mandated SG contributions by an employee’s salary sacrificed voluntary contributions into superannuation.
Under the proposed Bill, the salary sacrifice contributions will no longer count towards meeting an employer’s mandated 9.5% minimum contributions under SG law, nor reduce the wage base on which the 9.5% minimum is calculated. Few employers actually seek to do either of these things, so the issue mostly arises only in an employer insolvency context. Employer insolvency makes up over half the SG the ATO seeks to recover.
The proposed change represents one of the recommendations in the final report from the ATO-chaired cross-agency group tasked with developing options to improve SG compliance.
An alternative easy practical solution was unfortunately not mentioned in the report. Other recent legislative changes generally allow employees to deduct personal contributions after they have given a notice of intent to claim a deduction for the contribution to the super fund. Salary sacrifice agreements for extra employer contributions are therefore no longer necessary. A direction by an employee to (rather than an agreement with) the employer to pay salary into super will result in a personal contribution that is considered to have been made by the employee - therefore it won’t reduce employer SG obligations. These personal contributions could be better facilitated from gross salary if the ATO issued employers with a PAYG withholding exemption for them.
Salary sacrifices for other benefits
Salary sacrifice of ordinary time earnings for other benefits, such as a car or expense payments, will still reduce the wage base on which the 9.5% SG minimum is calculated. Ideally salary sacrifice agreements for those benefits should specify whether the employee is instead sacrificing overtime pay which is never included in the SG base.
Other recommendations still being considered
The Government is still considering the likely compliance improvement from the report’s other recommendations against the cost burden on employers.
To allow more timely ATO action to pursue unpaid SG contributions, the report had recommended:
- extending Single Touch Payroll reporting to small employers with less than 20 employees; and
- requiring superannuation funds to report contributions more regularly than annually.
To encourage employers who make genuine errors to come forward, the report had recommended:
- allowing legislative flexibility for the ATO to reduce and waive penalties, similar to that allowed for other taxes for voluntary disclosures; and
- aligning the period that interest for late payment of contributions is calculated with the period of non-payment, rather than from the start of the relevant quarter to when the SG Statement is lodged – this change was previously rejected by Parliament as undermining worker recovery rights.
ATO-initiated SG investigations into employers have more than doubled from prior years. Statistics cited in the report show SG compliance is lowest in the construction and accommodation and food industries. Phoenix activity by labour hire agencies is also a particular concern.