Implementation of payday super needs careful consideration: SMSFA

“The shift to a PdS model represents a significant departure from the current SG regime and the operation of the superannuation guarantee charge (SGC),” the joint bodies said in the submission.

“The proposed policy changes will impact a wide range of legislative provisions, employers’ compliance requirements, the onboarding of employees with an employer, payment and reporting systems and processes, services provided by intermediaries (including payroll providers, clearing houses and practitioners), and administration by the Australian Taxation Office (ATO or the commissioner).”

It continued that the shift to PdS provides a “rare opportunity” to address a range of actual and perceived shortcomings and deficiencies in the current system.

These include ensuring the PdS model operates to encourage employers to voluntarily rectify non-payment, underpayment, or late payment of employees’ SG entitlements and ensuring employees’ superannuation accounts are more equitably compensated for the lost earnings on unpaid SG amounts without disproportionately punishing employers.

It also stated the proposed changes could, if implemented properly, reduce compliance costs and ensure the PdS model is more consistent with other areas of taxation and superannuation legislation and other laws.

However, the bodies underlined that this will require an overhaul and redesign of existing components of the SG regime.

Together, they urged the government to consider a range of factors, including ensuring PdS is implemented in a manner that reduces compliance costs, utilises existing reporting mechanisms and avoids the duplication of efforts.

Additionally, the bodies recommended updating the SGC so it is simpler, more accurately compensates employees’ superannuation accounts for the loss in earnings for the duration their SG contributions are unpaid, and redesigns the penalty component.

They continued that the proposed model needs penalties imposed on employers for non-compliance to be on a proportionate basis so those employers who make an honest mistake are treated less harshly than those who engage in egregious non-payment of their SG obligations.

The joint bodies also said the proposed PdS should provide for an appropriate transitional mechanism to allow employers, self-managed superannuation funds (SMSFs) and digital service providers (DSPs) the time needed to adapt to the new requirements, including an amnesty to encourage employers to rectify historical SG shortfall amounts.

The ATO’s latest tax gap estimates for 2020–21 show that the net gap for Pay as you go (PAYG) withholding is 1.7 per cent ($3.871 billion), and the SG gap is 5.1 per cent ($3.619 billion).

“While the majority of employers do the right thing (almost 95 per cent of SG payments that were due were paid), the figures show that more than $3 billion a year of superannuation remains unpaid,” the submission stated.

“The difference in these tax gaps demonstrates, among other things, that the current SG regime, including the more severe penalties regime, is ineffective.”

The submission concluded that the SGC regime was designed and enacted in a different era and that its “archaic legacy design is no longer fit for our times, nor fit for the future”.

“One of the primary benefits that PdS will bring to employees is the earlier payment of their SG contributions into their superannuation account,” the joint bodies said.

“This will, therefore, generate earnings on those contributions earlier, and their retirement savings will benefit from the compounding effect of this over time.”