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Smart investing
Super: the neglected pay packet
April 19, 2007
Robin Bowerman
If your salary did not turn up in your bank account it would not be long before it got your undivided attention. But if your company fails to pay your super contribution into your super fund would you notice?
Your super payments are a component of your remuneration package and super now ranks just behind the home in terms of financial assets the average Australian owns. But because of its long-term nature and the simple fact that you cannot access it until you are nearing retirement age means that for most people super is something they check once, may be twice a year.
But there is a risk factor at work here that is not immediately obvious to some people. Assume you work for a smallish company that is going through a tough time, it has lost some key accounts, profits are down and pressure is up.
Every week you get a payslip and you check it is for the right amount and the super contributions are itemised just under the tax take. For most people that is probably where it stops – the right amount of money hits the bank account to pay for the mortgage, car payments, put food on the table and save for the next holiday.
But what happens if the employer decides to not make the super contribution to your fund? Would you notice after a month, three months or would it take the annual statement to alert you?
The vast majority of employers do the right thing but sometimes cashflow pressure can lead to things not happening as they should. Let us assume our employer believes a big new contact is only a few months from being signed and does not want to retrench workers because the cash flow squeeze will be short-term. The bank though is unimpressed and is not prepared to extend the overdraft facility. The employer stops paying himself but there is only enough cash to pay the salaries not the super – so it is accrued in the accounts as a liability with the best intention to pay it next quarter once business picks up.
In the hypothetical case above the employer may or may not get the chance to put things right but in the meantime a lot of other things could be affected. For example some years ago there was a case where a company was struggling with cashflow and held back super. It came good with the payments eventually but in the meantime the voluntary additional insurance cover that an employee had opted for through the super fund lapsed because the premiums were not being paid.
In another case a young hairdresser left a job after five years – grateful to the business owner for giving her the chance do her apprenticeship and learn the trade – only to discover when she checked her super fund that no contributions had been paid for the past three years.
Employers are required to pay 9% of base earnings for eligible employees into their super funds at the end of each quarter. So for the quarter that has just ended on March 31 super contributions should be paid no later than April 28. There is a big incentive to pay by the deadline because contributions paid by the due date are tax deductible to the business. If a company fails to pay then it still has the liability but there is no tax deduction.
To get a sense of the scale of the issue a tax office spokesperson says last year the ATO handled almost 28,000 employee complaints, insolvencies or other superannuation guarantee checks of employer compliance.
And a complaint to the tax office about an employer logically may lead the ATO to check each of that company’s employee entitlements and the tax office estimates it checked entitlements on behalf of 120,000 to 160,000 employees last year.
The Government’s move to make the super contributions payable quarterly has been a good one but unpaid super remains a concern particularly as we are enjoying the best of economic times and you can only speculate what the figures would look like if we were in a recession and small businesses were under greater cash flow pressure.
What can individuals do to ensure they are being paid their correct super entitlement? For a start take the time to understand your exact entitlement – this may sound simple but for example people working part-time in the hospitality industry for a number of employers it can be a quite an exercise.
An eligible employee is generally someone aged between 18 and 70 who are paid $450 (before tax) or more in a calendar month. Whether you work part-time or casually is irrelevant.
So the first step is to check your payslip to understand the calculation. Just as you can see the money in your bank account when you use an ATM or internet banking you can normally check your super fund account balance either over the phone or online. Most super funds these days have secure websites that let you access your account details and balance.
If the money is not there – check with your employer’s payroll or accounts area. If the explanations are not satisfactory then the choices get a little harder. You can contact the ATO to report the employer – an official letter from the ATO sometimes has an amazing therapeutic powers.
Clearly that is not a step to be taken lightly and some people will worry that they will run the risk of losing the job or getting badly offside with the employer.
But at that point you have to consider how you would feel if your boss suddenly stopped paying you 9% of your salary – after all your super is your money.
Whatever your views, you can discuss this article - or any of Robin's articles - on our message board Your 2 Cents.
Robin Bowerman is Head of Retail at index fund manager Vanguard Investments Australia and the former managing editor of Shares and Personal Investor magazines. To receive this column by email each week go to http://www.vanguard.com.au/ and register with smart investing.
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