Insolvency matters are complex, and it is highly recommended that both directors and employees seek professional advice from an insolvency expert regarding issues where employee entitlements, including compulsory superannuation entitlements, are not being paid in accordance with the law.
Directors face significant personal liability for failing to pay compulsory superannuation contributions. Employees face significant personal future financial losses if superannuation is not paid by their employer and both parties should remain vigilant by checking these payments are being made in full and on a timely basis.
Often the failure to pay employee entitlements and super in a timely fashion, in part or not at all, is a sign of insolvency and both parties have a duty to act as soon as possible to ensure compliance and mitigate losses. Most wage and entitlement losses for employees are caused by failed small businesses and companies, which employs the majority of Australians. Further, the major cause of bankruptcy to individuals is the loss of employment.
If a company is facing insolvency, accrued employee entitlements often remain unpaid by the company, despite having a priority in the liquidation process. Entitlements include wages, superannuation contributions, and leave entitlements. Employers are obligated to comply with the Fair Work Act and other relevant legislation and employee agreements to protect employee working rights.
In cases of insolvency, there may be additional considerations, such as the involvement of the Fair Entitlements Guarantee (FEG) scheme, which protects ordinary employee entitlements in most company insolvencies.
The FEG scheme provides for payments to employees who are owed money for ordinary unpaid entitlements such as wages and annual leave by a company in liquidation, although excludes compulsory superannuation contributions. Employees owed entitlements can claim:
- Unpaid wages of up to 13 weeks (which may include voluntary super contributions made through a salary sacrifice arrangement)
- The weekly wage however is capped at $2,585.00 per week per employee
- Unpaid annual leave and long service leave
- Payment in lieu of notice of up to five weeks
- Redundancy pay - up to four weeks per full year of service.
On the flip side, directors of the insolvent company owing the unpaid superannuation are made personally liable for the outstanding super along with interest and administration charges attaching to that outstanding super. These amounts can be significant. Further, the super owing and unpaid becomes a debt to the Australian Taxation Office who will commence recovery proceedings against the director, which could result in bankruptcy.
If you are an employee and you are not paid your wages in full or part, or not being paid on a timely basis you should contact the Fair Work Ombudsman on 13 13 94 immediately.
It goes without saying that if you’re not getting your wages paid in accordance with your terms of employment, it probably suggests your employer is not paying your super.
Employers are legally required to make superannuation contributions on behalf of employees per their wage agreement. Under the current legislation, employers are generally required to contribute a minimum of 10.5% of an employee's ordinary earnings into a superannuation fund. This percentage is scheduled to increase to 11% from July 2023 and gradually increase to 12% by 2025. These contributions must be made by the required deadlines to comply with the Superannuation Guarantee (SG) obligations. The SG contributions must be paid at least quarterly, and the deadline for each quarter is 28 days after the end of the quarter.
Failure to pay SG contribution renders the director of the company personally liable for the unpaid SG contributions immediately after the due date expires.
Employers are legally obligated to:
- Pay super for eligible workers
- Pay the right amount of super to the right place at the right time.
- Nominate a default super fund
- Pass on your employees’ tax file numbers to their super fund/s
- Keep records.
The contributions made by employers are in addition to the employee's own contributions, which can be made through salary sacrifice or voluntary contributions. Superannuation funds manage and invest these contributions on behalf of the employees, aiming to generate returns and grow their retirement savings over time.
If you find that your employer fails to pay you for annual leave taken, long service leave or other leave related entitlements, or cannot pay redundancy or termination payments in full or part, it may be a sign that your employer is experiencing serious financial difficulties. It is imperative that you act sooner rather than later in this regard as whilst your ordinary employee entitlements may be protected by FEG, your compulsory superannuation contributions are not, and may never be recovered, resulting in a significant financial loss and impact on personal wellbeing when it comes time to access your superannuation sometime in the future.
If you are experiencing difficulties meeting employee entitlements, or you are an employee concerned about receiving employee entitlements, please don’t hesitate to contact Shaw Gidley to avoid further stressors on your insolvency experience.