Business leaders call for simplified superannuation rules after SMEs accused of using employees’ super to improve cashflow

Business leaders are calling for a simplification of super paying processes after small businesses were accused of using unpaid super as additional cashflow.

The chief executive of superannuation services provider Industry Fund Services (IFS) Cath Bowtell told The New Daily this week SMEs are borrowing employees’ super without their knowledge and using it to cover issues with cashflow.

“These businesses are effectively borrowing that money without the employee knowing, they’re an unwilling and unknowledgeable creditor,” Bowtell told The New Daily.

IFS collects super on behalf of multiple industry funds, and Bowtell claims out of the 192,000 employers who were behind on super payments contacted in 2015-16, 29,000 of them made payments after a reminder phone call.

She believes few businesses are “truly at risk” of insolvency, and are instead using employees super to solve cashflow issues.

However, Peter Strong, chief executive of the Council of Small Business of Australia (COSBOA), believes the way to remove temptation for SMEs to dip into employees’ super to patch up cashflow is to put super in the hands of the tax office.

“We want to take it out of the hands of SMEs and put it in with PAYG. If we did that, [Bowtell’s comments] would be irrelevant,” Strong told SmartCompany.

“Its a very complicated system, so don’t ask SMEs to do it.”

But speaking to SmartCompany this morning, Bowtell said the argument for putting super in the hands of the Australian Taxation Office has been delegitimised with the introduction of government-supported clearing houses.

“With the advent of government supported clearing houses, I don’t think that argument has the same force,” she says.

Strong admits there will always be groups of employers doing the wrong thing, but argues a large group are just confused by the process. Strong is also critical of super funds, accusing them of “scamming” SMEs.

“Super funds have been appalling. They lose info constantly, and they threaten employers with legal action,” he says.

“If you add super complexity, funds who are incapable of good administration, and employers who struggle with management, its a recipe for confusion.”

Bowtell says no employers would receive a legal letter from super funds her business manages without multiple phone calls, which “remind and educate” businesses of their obligations.

“In my view this is not a heavy-handed approach,” she says.

“All our offices strive to educate businesses on their obligations, along with tax and employment law.”

Recently, industry groups and super experts pushed to remove the $450 monthly threshold for employer super payments, a suggestion business groups were hesitant to support amid concerns businesses may roster staff less often to account for additional super payments.

“Thats another 10%, [if someone earns $450] thats $45 you have to plan for,” Strong told SmartCompany at the time.

“$45, well, someone will say its not enough much money, but it is.”

Cashflow issues stem from long payment times

Small business ombudsman Kate Carnell believes SMEs using super to bolster cashflow is a symptom of a greater issue that stems from slow payment times.

“We’re seeing big business and government instrumentalities are paying SMEs slower and slower, and what that produces is a cashflow problem,” Carnell tells SmartCompany.

“They have to pay staff, pay landlords, and when payment times start blowing out, the areas where small businesses can manage cashflow is with the ATO and super.”

“It’s not right, and employers shouldn’t do it, but they’ve got a cashflow problem because they’re not getting paid.”

Carnell supports Strong’s suggestion for the ATO to handle employees’ superannuation, believing it would make things simpler for SMEs if tax and super were paid in one go.

“Rather than SMEs having to do administrative stuff on the behalf of super funds, make it so employers can pay tax and super in one go, then the ATO can pay the relevant super funds,” she says.

“The easier we make it the more likely businesses are to be compliant.”

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