Jones Partner

Employees and Unpaid Superannuation – Millions Lost

29/05/2014 by Bruce Gleeson

We know from ASIC’s statistics released that of companies placed into liquidation:

  • Approximately 85% have assets less than $100,000; and
  • In about 97% of liquidations (for the year 2012/2013) a dividend of less than 11 cents in the dollar was paid.


The fact that many company liquidations have very few assets and the dividend rate is so low is not overly surprising. It should also be remembered that approximately 80% of liquidations involve less than 20 employees. In this sense the dominate source of corporate insolvency relates to small incorporated businesses.

It is significant to note that small businesses employ almost half of the total industry workers. Therefore, when these small businesses are placed into liquidation, quite often there are significant employee entitlements outstanding. Whilst there is a Government safety net scheme currently known as the Fair Entitlements Guarantee (“FEG”), this scheme only covers employee entitlements for items such as unpaid wages, leave entitlements, payment in lieu of notice and redundancy. Importantly the FEG scheme does not provide for payment of unpaid superannuation of employees due by insolvent employers. We frequently find that when small businesses are placed into liquidation there is a significant amount due in respect of unpaid superannuation or superannuation guarantee charge (“SGC”).

Recent figures released indicated for the 2012-13 year there was approximately $190 million in unpaid superannuation owed to employees as a result of their employer’s insolvency. In the first half of the 2013-14 year that figure is currently sitting at approximately $81 million.

Whilst there were some amendments to the Director Penalty Notice Regime(“DPN”) which commenced from 1 July 2012 that now enables the ATO to issue DPN’s to directors to recover unpaid SGC amounts, in practical terms we have not yet seen any cases reported where the ATO has successfully used this regime to recover unpaid SGC on behalf of employees.

As the SGC rate continues to increase (from the initial amount when it was first introduced at only 3%) it is vital that employees regularly review whether or not their employer is making contributions on time (given the ability to access this information online). We have been involved in many company liquidations where employees have not had their SGC amounts paid for in excess of three (3) years and we believe there is some responsibility on the part of the employee to ensure that such payments are being made.

As the Governments of the present and the future place more reliance on the Superannuation System to provide for an employee’s future (even if in part) employees should bear some sort of responsibility for making sure their entitlements are paid. Obviously if it is not being paid, then the employee may need to consider their options. Equally we encourage employers that are becoming concerned about not being in a position to cover such payments to seek professional advice as it may be an indication of a level of financial difficulty and emerging exposure personally for the directors.

It is frequently discussed with us as to whether or not the Federal Government will ever introduce or extend the FEG Scheme to include unpaid superannuation. Whilst this may sound attractive and be an easy answer to deal with the problem, we are not aware of any present reforms or discussion papers that suggest this will occur. We also suggest that the costs that would be paid if this were to occur may be a significant detractor from it occurring.