Ensuring employees’ super gets paid

The term ‘pussyfooting’ comes to mind when looking at the government’s proposed new ‘tough’ approach to employees’ unpaid super contributions by employers.[1] Varying estimates unpaid are from $2.8m to $5.6 and more, and said to be growing annually.

The various enforcement and re-education measures in the 6,600 word Treasury Laws Amendment (Taxation and Superannuation Guarantee Integrity Measures) Bill 2018 would involve allowing the ATO to direct employers to pay, and to undertake SG education courses; imposing the inevitable criminal penalties; allowing the ATO to disclose more information and improve its collection and compliance measures (the ATO could not initially say how much lost super there was); and to extend Single Touch Payroll (STP) to all employers.

STP – reporting, or paying?

As to the latter, the Bill is predicated merely upon employers reporting employee details to the ATO under STP.

The original idea of STP was that employers would report and pay their employees’ superannuation contributions, and PAYG(W) taxes, at the same time the employee is paid.

That arrangement would have made this new law unnecessary.

But the SMEs and their accountants intervened, to call for a softer reporting-only approach, in support of the ‘cash flow’ of those operating on the edge in business. The government obliged.

That cash flow includes employees’ money that many employers like to hang on to, just for a while, to meet their business’ on-going payment commitments.  The law over-generously allows that, but only to an extent.

Employers going beyond that extent are costing billions.

‘Nobody disputes that PAYG tax and super is an employee entitlement and must be paid, the sooner the better’,

said CAANZ.

‘But this is an area where a desirable policy objective needs to take into account the fact that many SMEs struggle with cash flow …

It takes more than 50 days on average for small business accounts to be paid and many are in a weak negotiation position with key clients’.

Some history

As long ago as 1989, a Judge was saying, as judges ‘over the last 20 years at least’ had been saying, that an employee’s tax moneys are

“for all intents and purposes, trust moneys which do not belong to the company. If the company’s directors use these moneys for trading purposes, it shows a complete lack of appreciation of this situation and a serious lack of commercial reality”.[2]

Reality was too soft a term then, and it certainly is now.

Businesses’ over-reliance on employees’ moneys is unlawful; apart from that, its continuation serves only to perpetuate and entrench the problem that the government is trying to address.

It is but part of conduct of businesses just not paying a one-off supplier, or delaying payment, say for 50 days, or underpaying their workers.

The Melbourne phoenix reports

The only real authoritative source of useful recommendations for dealing with phoenix and other tax related defaults is the Regulating Fraudulent Phoenix Activity report. [3] It supports STP being extended to actual payment, then and there. It notes that the accountants’ and businesses’ objection to paying super on time

“shows the extent to which businesses rely on employee-related sums – ‘their money’ until it is legally payable – to finance their businesses, and also shows the hesitation of the government to interfere with this practice”.

And so it goes on. It is a vicious and inefficient cycle that needs to be broken. Requiring payment would serve to halt this unsatisfactory on-going approach of business to its employees’ tax debts.

So last century

It is a last century issue.  In ten years, or less, it will be seen as quaint – ‘the tax system relied on employers to decide when or whether to pay their employees’ super?!’ – and it already is. New payment and tax systems are developing which render much of our present financial experience archaic.

We should be preparing for that now.  Rather than the Treasury Laws Amendment (Taxation and Superannuation Guarantee Integrity Measures) Bill 2018, we should be going back to the original idea of STP, having regard to what the law has been saying for 50 years.

 

[1] Superannuation Guarantee Integrity Package, Treasury. Submissions close 16 February 2018

[2] Cullen v CAC (1988) 14 ACLR 789

[3] Regulating Fraudulent Phoenix Activity, 2017, Melbourne and Monash Universities, led by Professor Helen Anderson.

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