Despite new laws empowering ATO, many Australians are owed super by employers

From January 1 2024, a change to the National Employment Standards makes superannuation an entitlement in addition to employers’ obligation to pay superannuation contributions for eligible employees under superannuation guarantee laws.

Employees have additional measure to redress unpaid superannuation

The Fair Work Legislation Amendment (Protecting Worker Entitlements) Bill 2023 (PWE Bill) was introduced into Parliament in April 2023, seeking to insert an entitlement to superannuation contributions in the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FWA).

Employees covered by the NES can now take court action under the Fair Work Act to recover unpaid or underpaid superannuation, on the basis that the ATO has not already commenced proceedings in relation to that super. The NES entitlement to super aligns with super laws, so if an employer complies with the super guarantee they will also meet their obligations under the NES.

The ATO administers the superannuation guarantee and non-compliance is currently regulated by the Commissioner of Taxation (Commissioner) through powers granted by the Superannuation Guarantee (Administration) Act 1992 (SGAA). The enshrinement of superannuation into the NES means that employees have the right to pursue unpaid superannuation as a workplace entitlement, including through the Fair Work Ombudsman (FWO) or their union.

In New South Wales, South Australia, Queensland, Tasmania, and Victoria, employees who are not covered by the NES include those who are employed by sole traders, partnerships, other unincorporated entities, or non-trading corporations.

New measures put the process in worker’s hands

Sharmilla Bargon is the Coordinator of the Employment Rights Legal Service (ERLS). She says that ERLS was calling for changes as far back as 2020.

“These changes are changes we have directly called for,” she says. “Even though it’s very helpful when the ATO brings this action on behalf of the worker because then the worker doesn’t need to engage a solicitor to bring these claims to court. The reality is that the ATO process takes a long time until the money is in the worker’s super fund and the whole process is out of the worker’s hands.”

Bargon says it’s a benefit that wage theft, including unpaid superannuation, can be addressed at one time through the new measures.

“Previously, there was not a direct entitlement for an employee to sue for superannuation: the employee couldn’t sue the employer directly. Making the failure to pay super a breach of the NES means that the worker can now sue for all of their underpaid entitlements at the same time. Previously, if a worker was pursuing underpaid wages, they might be paid the wages they’re owed, but they wouldn’t get paid their superannuation and they didn’t have the standing to claim it with their wages.”

In an ideal world, the ATO would use its enforcement powers, but this new provision improves the situation for workers.

Unpaid superannuation and wages are “the most common issue people come to us for, year on year,” says Bargon. “It is incredibly common, and people often don’t know that they even should be paid super, so one of the first things we do is ask people to call their super fund or log into their online account, rather than purely relying on payslips. In my experience, it’s one of the common underpayments that we see in NSW, and I have no reason to believe it wouldn’t be the same across the country.”

Small claims have benefits and disadvantages

Bargon says, “Until the ATO prioritises this area and takes more action in a way that puts money in the worker’s super funds faster, these changes provide a good avenue for all of an employee’s entitlements to be recovered in the one action.”

For employees who use their right to sue for unpaid superannuation and wages, the time frame is shorter than the lengthy ATO process. Bargon says, “The best outcome for a person wanting to bring a small claim is that it could be wound up in 3 to 4 months. It can take longer, sometimes over 9 months. We’ve had super claims with the ATO extend for over a year, so the small claims process is generally much faster. The small claims process is geared to enable low-income workers to take action and self-represent. In fact, you have to seek leave to appear as a solicitor for clients who are utilising that process, so it is geared towards helping people to represent themselves. The reality is that very few workers bring claims utilising the small claims process: it’s under-utilised.”

Even though the small claims process is less formal than the general division of the court, it is still a demanding experience, Bargon explains.

“It’s obviously very helpful to have a solicitor to recover underpaid entitlements, but that’s expensive so there is really an access to justice issue here for people who have been underpaid their employment entitlements. The small claims process is much less legal than the general division of the Federal Circuit and Family Court, but the process still requires workers to draft statements and calculate what they’re owed. It’s a simpler legal system, but it can be overwhelmingly complex for many workers especially marginalised workers or those for whom English isn’t their first language.”

The effort required to pursue underpaid entitlements through small claims carries no benefits through costs and damages, either.

Bargon says, “When you bring a claim through the small claim process, you cannot be awarded damages, so all you can get is what you should have been paid. People have to go through courts for months to get what they should have been paid in the first place. They’re not getting anything extra and they’re not getting their costs. So, if they pay for a solicitor to lodge proceedings under the Fair Work Act, it’s hard to claim for costs.”

“Significant, sustained, increasing” non-compliance

In July 2009, the national Fair Work system commenced. It was introduced by the Fair Work Act 2009 (Fair Work Act) to replace the Workplace Relations Amendment (Work Choices) Act 2005. The system covers approximately 87 per cent of employees nationally.

Along with its establishment of the national minimum wage, workplace protections, and nationally applicable awards for specific industries and occupations, the Fair Work system tasks the agencies responsible for regulating the system and outlines a civil penalty regime designed to ensure compliance, primarily the Office of the Fair Work Ombudsman (FWO) and the Fair Work Commission (FWC).

However, the title of the report submitted to the Parliamentary Committee on unlawful underpayment of employees’ remuneration in March 2022 – Systemic, sustained and shameful – sums up the ineffectiveness of the Fair Work Act to identify non-compliance and to act meaningfully to protect workers.

As the report makes clear, “the problem lies with the significant, sustained, increasing levels of employer non-compliance with minimum National Employment Standards (NES) and other aspects of the Fair Work system.”

In his verbal evidence to the committee, Mathew Kunkel, Director of the Migrants Workers Centre pointed to the lack of funding and resources for the regulatory body tasked with enforcing employer’s compliance.

He said, “Sorry to our colleagues of the FWO, who are working hard, but they don’t have enough money and they don’t have enough resources, and the way they’re set up is not to be that cop in the first place … there should be some other additional resources because there’s such a widespread issue with wage theft in this community.”

On the other hand, Sunil Kemppi from the ACTU denied that funding was the problem and that compliance enforcement measures required greater teeth.

He told the committee that the ACTU had evaluated “…the amount of money recovered, taken from their annual reports, by the Fair Work Ombudsman. If you look at those figures—about $30-odd million per year—it’s quite a small figure compared to the estimated billions of dollars in wage theft that is committed each year. That gives an example of the scale of the inspectorate’s ability to pursue wage theft versus the actual problem in itself. The four-and-a-half thousand-odd permit holders would certainly be able to have a much greater effect if given the power to do so.”

Dr Tess Hardy, Associate Professor at Melbourne Law School and Co-Director of the Centre for Employment and Labour Relations Law, told the committee that “in my view, the need for effective enforcement of minimum wage, superannuation and other employment-related entitlements is stronger than ever. Enforcement is not only critical for maintaining and sustaining the safety net and upholding the rule of law; it’s also essential for protecting the health and safety of workers and the community more generally.”

A fairer system for migrant workers

A recent client of Bargon’s sought advice when she believed she’d been unfairly dismissed. When the client mentioned her hourly rate, Bargon said it was “a red flag”.  She’d never been paid any super and she’d been underpaid $20,000 over a year and a half. The Employment Rights Legal Service is representing the client and taking action over her unpaid earnings and her unpaid superannuation.

The statewide service Bargon coordinates prioritises migrant workers who are often not entitled to bring claims under the Fair Entitlement Guarantee (FEG).

“When a business goes into liquidation or goes bankrupt, Australian citizens and permanent residents can claim their entitlements and they’re guaranteed to be paid up to 13 weeks unpaid wages, annual leave, and at least 4 weeks redundancy per year of service.”

For migrant workers, she says, “It’s very hard to get money from liquidators once an insolvency process has started. It’s an ongoing unfairness for those workers who have paid taxes but whose visa position doesn’t allow them to claim on the FEG.”

She says, “They can put the liquidator on notice of their debt and hope there’s money floating around to be able to pay them, along with the long list of others wanting to be paid. If a director has had a role in underpayment, you can bring action against that person in their personal capacity rather than the business itself, but it’s tricky from a legal perspective to take that step and before you do this, it is best to check they have money to pay.”

Bargon says, “This change to the NES enables workers to use the small claims process against a director in their personal capacity and gives more options to migrant workers and international students.”

While the underpayment of superannuation can turn into a political and economic football, it has dire consequences for many workers who are victims of wage and superannuation theft.

Bargon says, “We literally have clients come to us who are couch surfing and don’t know where they’ll get their next meal because they’ve been underpaid. Superannuation underpayment has less immediacy than wage theft, but it’s stealing from the future. Superannuation is there to equip you for retirement. If someone’s super is unpaid, then they lose out on compound interest, and it disproportionately impacts on women who might earn less or are already taking a hit due to child-care obligations or taking time out of the workplace.”

A super scourge

In Australia, one-quarter of all Australian employees are currently seeking unpaid or “lost” superannuation. Despite the enforcement powers granted to the ATO in 2019, it has never used these powers to ensure that companies pay the super owing to employees who lodge cases with the ATO.

According to ATO statistics, over 30,800 employers voluntarily disclosed superannuation underpayments in the financial year 2021-22. Another 22,000 regulator-led investigations generated approximately $765 million in superannuation guarantee charges (SGCs). The ATO currently estimates that the superannuation gap (referring to the difference between what the ATO expects to be paid and the amount that would have been paid if every employer was fully compliant with the law) is approximately $3.4 billion.

The Guardian recently reported on Cheree Corbin, who was owed $12,000, but the company she worked for went into liquidation, and despite raising her case with the ATO, she hasn’t been paid any of her super a year on from when she alerted the ATO. The ATO has never used its enforcement powers, granted in April 2019, to issue a direction to pay (DTP). Failure to pay a DTP is a crime punishable by either a $15,650 fine, 12 months in prison, or both.

At the public senate hearing on 18 September 2020, the committee heard that the ATO had considered using the DTP power on 40 occasions but failed to do so, stating its reason as ‘on each of these occasions the employer has entered into liquidation or insolvency and/or has entered into a payment arrangement’.

The ATO also advised that it had issued 2,233 Superannuation Guarantee (SG) director penalty notices to directors of 1,572 companies for a value of $146 million but that it had only collected $20.6 million of that amount (a 14 per cent recovery rate).

Bargon says, “Because we’re not using our superannuation accounts day to day, there’s a delay before people realise they haven’t been paid an entitlement. There have been calls for reform in this space for some time.

She adds, “Ultimately, we welcome these changes, and we called for them so we’re happy that they have been implemented. When people get money in their superannuation fund, that will mark the changes as successful.”