Superannuation is an essential part of every Australian worker’s remuneration and employers face severe penalties if they get their payments wrong.
It’s a shame then that the system is so complicated that it’s easy for employers to trip up on exactly what their obligations are, especially when it comes to contractors. Employers may think that because a worker has told them they have an ABN or there is an Independent Contractor Agreement in place, they are not required to pay superannuation. But superannuation law extends the definition of “employee” to capture any worker who provides services, the major part of which is their personal labour or time.
It doesn’t matter if the worker negotiated a higher rate of remuneration or even expressly waived their superannuation in writing. The obligation to pay superannuation is statutory and cannot be contracted away. But if contractors work through a company, trust or partnership, the ATO will not treat them as employees.
The law in this area is unnecessarily complicated for an issue that affects everyday operations. Reforms that provide certainty and consistency around an employee’s status and how they need to be treated consistently for tax purposes – PAYG, superannuation, payroll tax – are needed.
Sometimes workers are genuine “independent contractors” but if employers do not maintain the right documents or records, they are vulnerable if audited by the Australian Taxation Office. Sometimes contractors are actually employees according to the law and superannuation should be paid, leaving employers to face a massive back payment of unpaid superannuation. With the ATO being allocated more money in the most recent federal budget to chase those failing in their tax obligations, it’s likely it will flex its muscle in this area.
The back payment itself could be so large that a business has to close its doors. Add significant penalties and interest and it is easy to see why people put their head in the sand, making the issue a sleeping giant for the business community. While many employers do not deliberately set out to circumvent the superannuation system, now is the time to admit any mistakes that have been made with the ATO offering a penalty amnesty to employers.
In an effort to encourage employers to pay outstanding superannuation and avoid serious penalties, the Federal Government announced an amnesty for employers earlier this year. The proposed amnesty is to run from May 24, 2018 to May 23, 2019, but is yet to be enacted into law.
Under the proposed amnesty, employers who self-declare unpaid superannuation are entitled to a 100 per cent waiver on the penalty. In addition to this, the business can potentially claim the full amount of the back payment as an income tax deduction.
Until the amnesty is passed into law the ATO website says it will continue to apply the current law and apply any superannuation declarations retrospectively if the amnesty is passed.
We believe it is in the interests of employers who have errors in their superannuation payments to self-declare and take advantage of the amnesty period regardless of whether it is passed into law. We believe the ATO will look favourably on those who “do the right thing”.
Now’s the time for employers to pull their heads from the sand.
Prath Balasubramaniam, Principal Lawyer, Macpherson Kelley