As part of the Federal Government’s “Your Future Your Super” (“YFYS”) reforms, employers face additional obligations regarding their employees’ superannuation as of 1 November this year.

And while the measures are no doubt a good thing for the countries workers, the truth is it is just another additional administration burden being placed on employers, with genuine potential consequences if things are not done right!

Your Future, Your Super

The YFYS reforms are intended to improve transparency, efficiency and accountability within the superannuation industry as a whole and the reforms include a number of measures such as –

  • Super funds will now be subject to an annual performance test (and failure may restrict the fund’s ability to accept new members),
  • A new online interactive YourSuper Comparison Tool will be available to taxpayers to allow them to compare their fund’s performance with others available, plus
  • Most relevant to CapitalQ Business Clients… the introduction of Super Stapling!

What is Super Stapling

A Stapled Super Fund is an existing super account which is linked – or ‘stapled’ – to an individual and follows them as they change jobs.

Working Australians will now be attached to one super fund for life, unless they choose otherwise!

The idea is designed to reduce the number of super funds individuals hold, making it easier for them to manage their super savings, avoid unnecessary fees and costs, and maximise their retirement savings by pooling all available monies into the one place.

What Does it Mean for Employers?

For some time now, the very vast majority of employers have been required to offer Super Choice to their employees.  It meant that as part of the employee onboarding process, employees were given the option to nominate the super fund to which the employer is to send their super entitlements.

If the employee failed to exercise their right to choose a super fund, the employer was required to contribute to their ‘Default Fund” (each employer must have nominated a Default Fund prior to taking on employees and must have advised all employees of that nomination).

Unfortunately for employers, Super Stapling will mean adding at least one extra step in your administration obligations when it comes to new employees…

Employee Onboarding – Superannuation Compliance Steps

Here are the basic steps employers must now take in relation to superannuation when a new employee commences as of 1 November 2021 –

Step 1 – Offer Super Choice as usual

All employers standard new employee process should already include offering Super Choice.  The employee should be given the chance to nominate their preferred super fund either via the employer’s existing onboarding forms and processes, or otherwise by completing the standard ATO Super Choice Form.

(Employees are also now able to provide their Super Choice details using online forms within their MyGov account.  Though they will need to have agreed with the employer that this method is acceptable.  The employer will also need to provide the employee with key details which they will need to enter when completing the form online.)

Step 2 – Where no Super Choice is made, SeaRch the ATO system for a Stapled Super Fund

If an employee fails to nominate a suitable super fund, instead of automatically resorting to their Default Fund, employers are now required to search the Australian Taxation Office’s (“ATO”) online systems in an attempt to identify the employee’s ‘Stapled Super Fund’.

If such a fund is identified, the employer MUST contribute to this fund (largely without exception)!

Step 3 – Resort to the Default Fund if no Stapled Super Fund identified

Only if no such Stapled Super Fund is identified may the employer then resort to their Default Fund as they have previously done.

Searching for an Employee’s Stapled Super Fund

The ATO has created a directory via ATO Online Services.

In order to perform the search, employers must enter the employee’s key details including Tax File Number (“TFN”), full name, date of birth and address.

(CapitalQ, as the employer’s Tax Agent, are also able to perform the search on the employer’s behalf.)

If the search returns a Stapled Super Fund for the employee, employer’s will need to ensure all required superannuation contributions for that employee go to the Stapled Super Fund.

Why Getting Super Stapling Right is so Important

First off, as of 1 November 2021, it is a legal requirement of employers to comply with the new measures.  And naturally enough, after a likely transition period, employers who fail to comply are sure to face penalties.

However, of even more relevance in our eyes, if an employer fails to comply, and instead makes contributions to an incorrect super fund, and over the course of time it is identified that the employee’s retirement savings are less than they would have been had the employer complied, there is a possibility the employer could become liable for the shortfall.  And of course if this is not identified until many years down the track, the potential liability for the employer could be substantial!

Tricks, Traps and Our Verdict

Avoiding the situation where employees have multiple super funds, and generally have less retirement savings than they should simply due to poor administration, is without doubt a commendable goal.

However, there is also no denying that the ever increasing administrative burden being placed on employers makes owning and operating a business more difficult, and more costly, every day.

And in a perfect world, workers would take personal responsibility for their retirement savings and therefore not require the Government to force employers to do the work for them (and face the prospect of prosecution if they don’t).

This is particularly relevant in the scenario where an identified Stapled Super Fund of an employee refuses to accept an employer’s contributions!

In this scenario, the burden on the employer increases dramatically…

You see the ATO advises the employer must perform a second search!

And, if the same Stapled Super Fund is returned, the employer is then obligated to call the ATO (and no doubt wait on hold at least half an hour as usual) and seek advice and instructions as to where they are to send their employees’ contributions.

While putting aside the time requirement of such a process, precious time small business owners don’t have, the practicalities of this process are that –

  • By the time the employer has learned the contribution has not been accepted by the first identified Stapled Super Fund, they will likely have missed the contribution deadline (which as all employers know, is a hard and fast and non-negotiable date),
  • Therefore, if the contribution is not accepted, and they do miss the deadline as a result, they will be deemed to have breached their Superannuation Guarantee Charge (“SGC”) obligations,
  • This means even more administration work, as once the deadline is missed, the employer has no choice but to report the breach to the ATO using an SGC Statement (regardless of whether the contribution is ultimately made to another fund in compliance with the Stapled Super Fund requirements or not)!,
  • Further, penalties apply to every SGC Statement, PLUS
  • Interest is also charged on late contributions (calculated back to the start of the quarter, not the due date)!

While there is no doubt the ever increasing burdens make the path even tougher, hopefully it will make achieving your business End Game even sweeter!