The Inspector-General of Taxation says more should be done to chase SMEs that fail to pay their employees’ superannuation, including through “random audits” of businesses by the tax office.
On Wednesday, Ali Noroozi’s review into the ATO’s compliance activities on employer obligations was released to the public, revealing 11 recommendations to “ease the compliance burden particularly for small businesses”.
These include reviewing the tools already available to employers for working out when a staff member should be classed as an employee or contractor. Noroozi also called on the tax office to ensure super entitlements are paid promptly to staff members through measures that include “random audits, to curtail the propagation of non-compliance”.
While Noroozi acknowledges that random audits could expose compliant employers to “unnecessary compliance costs”, he says the ATO could reimburse employers who are found to be doing the right thing.
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“Furthermore, such costs and inconveniences should be weighed against the potential disadvantage that the very same compliant employers face if their competitors do not pay SG and remain undetected,” he said in the report.
“It should be noted that, in the long term, random audits may also lead to better targeting of non-compliant taxpayers.”
The issue of unpaid superannuation has been in the spotlight over the past year, with a 2016 report from Industry Super Australia and Cbus estimating unpaid super in 2013-14 reached $3.7 billion.
However, in response to the report, the tax office says it disagrees with the recommendation for random audits.
“Random audits are an untargeted approach that imposes unnecessary costs and time burdens on compliant taxpayers. Investment in random audits would be at the expense of more effective and beneficial approaches,” the ATO said.
Experts have previously told SmartCompany that the costs of non-compliance on this front can be significant even if you are responsible for your own super and fail to pay this yourself.
Meanwhile, small business groups and accountants say there remains confusion in the SME community about when business owners are required to pay employees super, and when individuals should be classed as contractors or ongoing staff members.
Noroozi’s report agrees more can be done to help small businesses decide when a staff member should be classed as a contractor and when they are an employee.
The report says the costs associated with seeking professional advice in this area can be “prohibitive”, and mis-classification of workers can cause big problems down the line because “where workers are misclassified, intentionally or otherwise, the ATO may after many years, apply retrospective changes to those relationships resulting in significant unplanned liabilities for businesses which may affect their ongoing viability”.
The report also considers the effectiveness of the tax office’s “Employee/Contractor Decision Tool”, which helps businesses decide how to class workers. Noroozi noted stakeholders called the tool “overly simplistic”.
Australian Small Business and Family Enterprise Ombudsman Kate Carnell says businesses who fail to pay workers super have been in the firing line for some time, and SMEs should expect spot audits to happen.
“It’s a really important message to small businesses to make sure they’re paying on time. To start with, it’s not fair to employees, it’s their money,” Carnell says.
Reminding businesses of the importance of treating their employees “fairly”, Carnell says SMEs need to know they will be facing “high” penalties if they end up getting caught out.
Principal at Perigree Advisers Lisa Grieg told SmartCompany the report’s suggestion of random audits to catch out businesses not paying super was reasonable, but also believes businesses should be reimbursed if they are forced to undergo and audit and found to be doing the right thing.
“Generally, if you undergo any sort of ATO audit and are shown to be compliant, I think you should get your expenses back,” she says.
However, when it comes to working out how to pay the correct amount of super to staff members, she warns that SMEs increasingly have fewer excuses for getting it wrong.
“I think a lot of times now it’s actually easy to do the right thing with paying super. If you use the tools available, it will make it so much easier.”
The only thing holding SMEs back on this front is a reluctance to move away from traditional spreadsheets and towards the cloud computing and software packages available, Grieg says.
“It’s about moving away from the spreadsheets to automation, but i think there’s still a lot of resistance — even the number of people using the cloud is really, really low.”