Protecting Worker Entitlements Bill: Introducing superannuation guarantee into the National Employment Standards

The Fair Work Legislation Amendment (Protecting Worker Entitlements) Bill 2023 (PWE Bill) has been introduced into Parliament and will seek, amongst other things, to insert an entitlement to superannuation contributions in the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FWA). 

The NES are minimum employment entitlements that have to be provided to the vast majority of employees in Australia. Workplace instruments (including modern awards, enterprise agreements and employment contracts) cannot provide for conditions less than the NES. There are currently 11 minimum NES entitlements, which include fundamental employment entitlements such as annual leave, long service leave, notice of termination and redundancy pay. 

The superannuation guarantee regime is administered by the Australian Taxation Office (ATO), and non-compliance is currently regulated by the Commissioner of Taxation (Commissioner) through powers granted by the Superannuation Guarantee (Administration) Act 1992 (SGAA). The inclusion of superannuation in the NES will give employees the right to pursue unpaid superannuation as a workplace entitlement, including through the Fair Work Ombudsman (FWO) or their union. This is a significant change because individuals do not currently have a legal standing to directly pursue the underpayment of superannuation unless an entitlement is specifically included in their employment contract. Instead, any claim for unpaid superannuation has to be made by first approaching the ATO. 

The Bill’s explanatory memorandum highlights that the inclusion of superannuation within the NES is “intended to reinforce the Government’s position that underpayment of superannuation is a form of wage theft and worker exploitation”. The creation of a NES entitlement will augment the ATO’s regulatory powers by creating an additional mechanism for enforcement where superannuation underpayments occur. 

For completeness, the PWE Bill includes other changes relating to migrant workers, unpaid parental leave and deductions. This article addresses the superannuation aspect only.

The PWE Bill

The PWE Bill, if enacted, will commence from the first quarter after the end of 6 months from the day of assent. Therefore, where the Bill becomes law, there will be a period of transition before the changes are effected (and properly understood in terms of practical impact). 

In relation to superannuation, the key amendments proposed to the FWA provide:

• A requirement that employers make sufficient contributions to a superannuation fund for the benefit of an employee so as to avoid liability to pay the superannuation guarantee charge (SGC) in relation to the employee. 

The SGC overlay means that the NES entitlement will not provide for recovery of superannuation contributions above the SG (such as where an enterprise agreement provides for additional contributions above the minimum SG entitlements). If not made, such contributions still need to be pursued as a breach of the enterprise agreement under the FWA.

• A more limited scope than covered by the SGAA. For example, it will not extend to workers who fall under the extended definition of “employee” under the SGAA (such as for certain contractors who are engaged “wholly or principally for labour”).

• That breaches of the NES entitlement to superannuation contributions will be subject to the compensation and penalty regime in the FWA. This allows for orders for compensation in the event of underpayments and for civil penalties to be applied for a contravention. The Bill’s provisions note that, usually, it would be most appropriate for any order for compensation to be paid to a superannuation fund for the benefit of an employee.

• For prevention of multiple actions. An employee (or union or the FWO on their behalf) is not able to commence legal proceedings for recovery of unpaid SGC amounts where the Commissioner has already done so. However, the provisions make it clear that this is limited to court proceedings, and therefore, if the Commissioner has engaged in other enforcement activity (for example, an audit), this limitation would not apply.

Who will ultimately regulate superannuation compliance?

The proposed dual regulator approach is unusual and raises questions as to how the FWO and ATO will operationalise these changes. 

The Bill does not provide clarity about how employee claims or employer voluntary disclosures should be managed where superannuation underpayments are identified. To that end, we anticipate that both the FWO and ATO will need to provide guidance in due course in relation to matters such as:

• the appropriate channel for employee complaints to be pursued in the first instance, including the interaction between the two regulators in relation to investigative and compliance activity (for example, whilst the PWE Bill provides for mitigation of multiple actions, there does not appear to be consideration of audits and reviews)

• whether, in respect of employer voluntary disclosure, both authorities are required to be notified (and the appropriate channel and mechanism to do so)

• if a claim is pursued in relation to the NES, and a court order provides for a superannuation payment, does it still necessitate lodgment of SGC statements with the ATO (as administrator under the SGAA)? Will this differ if the court order provides for compensation to be paid via an alternative mechanism (i.e. not paid to a superannuation fund for the benefit of the employee)?

• the intersection (and potential interaction) of penalty regimes available to both regulators (for example, civil penalties under the FWA, as well as the 200% Part 7 Penalty from the SGAA)

• the required length of remediation in voluntary disclosure contexts, given the FWA and the SGAA provide for differing claim and/or record-keeping periods.

Key takeaways

The changes seek to complement, but not replace, the ATO’s regulatory powers. The Commissioner has responsibility for administering the tax laws that relate to the imposition of an SGC and, historically, the FWO has deferred superannuation matters to the ATO. The NES entitlement will be a separate obligation to make superannuation contributions and will create an additional enforcement mechanism via the FWO if an employee’s superannuation entitlements are underpaid or not paid at all.

Employees will presumably, therefore, have the ability to pursue a claim for underpaid superannuation through either (or both?) the ATO or the FWO. The group of employees who may pursue claims outside of the ATO complaint mechanism will also be expanded. 

The key takeaway for employers is the continued focus on superannuation compliance. Whilst the 2020 SG Amnesty encouraged over 28,300 employers to come forward, ATO statistics indicate that over 30,800 employers voluntarily disclosed superannuation underpayments in FY22 alone. This was in addition to almost 22,000 regulator-led investigations, which generated approximately $765m in SGCs. The ATO currently estimates that the SG gap is approximately $3.4b. Given the large (and increasing) volume of disclosed underpayments, this proposed measure is a further evolution to enable the pursuit of claims for unpaid superannuation entitlements. 

Changes, such as those proposed by the PWE Bill, coupled with the continued evolution of regulator compliance activity, further highlight the importance of payroll-related governance in relation to superannuation. This includes examining (or re-examining) your organisation’s structures and processes in relation to recent payroll developments including Single Touch Payroll Phase 2 (STP2) reporting. Ms. Emma Rosenzweig (ATO Deputy Commissioner for Superannuation & Employer Obligations), has recommended, at a minimum, robust testing across payroll system mapping, STP Phase 2 labelling, and non-payroll data access. We also recommend that you look at the language in your enterprise agreements and employment contracts to avoid unintended differences between the entitlements created by different instruments.

Should you wish to understand more about the PWE Bill, or if you have any questions about your superannuation obligations, please reach out to your PwC Workforce specialist for assistance.