What's trending? Superannuation stapling - are you ready?
Is your organisation ready for the super stapling changes that were effective from 1 November 2021? And are you future-proofing your systems and processes?
- 28 October 2021
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Important changes recently commenced which significantly affect employer obligations regarding SG contributions and, in particular, how decisions must be made regarding default superannuation funds.
From 1 November 2021, if a new employee does not nominate a superannuation fund, employers will need to request details of the employee’s ‘stapled superannuation fund’ - being a single default superannuation account allocated to each individual - from the ATO’s online services.
As a result of these changes, default funds - traditionally used by employers for employees that do not nominate an alternative fund - will generally be used where an employee actively chooses that default fund, or if they do not have a ‘stapled superannuation fund’. This means that employers must undertake a tiered decision making process when determining the fund in which an individual’s SG contributions should be paid. It also means a greater level of interaction with the ATO - a requirement which once again may warrant greater interaction between tax and payroll functions.
By way of background, on 22 June 2021, the Treasury Laws Amendment (Your Future, Your Super) Bill 2021 (Cth) received royal assent, introducing a suite of amendments to the existing choice of superannuation fund rules. Several key amendments took effect on 1 November 2021, which are intended to minimise the number of duplicate superannuation funds for new employees. In particular, one critical change is that employers will need to implement additional steps in their onboarding process to ensure they comply with choice of fund rules. This is in order to ensure the tiered process of superannuation fund selection ensures that an employee’s ‘stapled superannuation fund’ is used in place of the employer’s default superannuation fund where appropriate, and to ensure the necessary steps to achieve this are executed with regard to ATO expectation of employers.
Revisions to existing employer processes should have been made to prepare for these changes as failure to meet these requirements, which form part of the broader superannuation ‘choice of fund’ provisions, may result in the ATO imposing a penalty which can increase a Superannuation Guarantee Charge liability.
At a minimum, it is recommended that employers:
Create awareness across the relevant stakeholders that a tiered set of ‘choice of fund’ rules will shortly be in place and that substantial penalties can be imposed where breaches occur. These stakeholders should cover teams involved in employee-onboarding (both legal and HR aspects), payroll and also, the tax/finance team for the purpose of being across this additional avenue through which non-routine interactions with the ATO may occur;
Ensuring relevant processes set out clearly the sequence with which decisions should be made when identifying an individual’s ‘fund’;
Ensuring the relevant team members are aware of the ATO systems that they will need to access and follow closely ATO guidance on the procedures to be followed;
Ensuring the requirement to contact the ATO forms part of these processes as early as possible, in order to prevent last minute or late SG contributions, or contributions to an incorrect fund;
Ensuring non-routine communications and interactions with the ATO involve the tax/finance team, given the role SG obligations may have on an employer’s broader risk profile.
Transitional time periods and ATO discretion
Pursuant to the Superannuation Guarantee (Administration) Act 1992 (Cth), the Commissioner has the discretion to reduce a choice of fund shortfall. The ATO has recently issued an updated legislative instrument which provides some indication as to when the Commissioner will exercise their discretion.
To provide employers with time to modify their processes in response to these changes, the recently issued legislative instrument indicates that, if a choice of fund shortfall arises during 1 November 2021 to 31 October 2022, the ATO may reduce any choice of fund shortfall associated with the stapled fund changes to nil. However, the ATO has specified that the Commissioner’s discretion will only be applied if the shortfall arises during the transitional period due to an employer’s lack of knowledge, as opposed to intentional disregard. It should be noted that the exercise of discretion as described, would not extend to existing ‘choice of fund’ breaches.
From 1 November 2022 onwards, to receive a choice of fund shortfall reduction, employers will need to demonstrate that they have made a genuine effort to comply with the choice of fund requirements. Further factors such as an employer’s compliance history, will impact the level of remission that is granted.
Details on the types of factors considered can be found in our previous article ‘What’s emerging? New ATO Guidance on remission of SG penalties’.
Additionally, the Commissioner has the discretion to reduce an employer’s shortfall in circumstances where fund contributions were made late because an employee’s stapled fund did not accept the employer’s contributions, and where the employer subsequently makes the contributions to another fund. More specifically, in such circumstances the ATO has indicated within the legislative instrument the Commissioner will take into account the following, when deciding whether to exercise this discretion in the post-transition period:
whether the contributions were made to another fund within a ‘reasonable time’; and
any mitigating factors or exceptional circumstances.
Has your organisation adjusted their processes to apply these extensions to the ‘choice of fund’ rules? Would the revisions to existing processes stand up to the ‘reasonable care’ threshold in the event of an ATO review?
With these changes already in effect, it is more important than ever for you to ensure your superannuation compliance processes are up to date, before it is too late.
