Superannuation Guarantee gap 2018–19

This information is for historical purposes only. If you require previously published content for past estimates, please email taxgap@ato.gov.au.

This estimate for the superannuation guarantee gap relates to the 2018–19 financial year

On this page

• Trends and latest findings
• ATO action to reduce the gap
• Methodology
• Reliability

This gap forms a part of our overall tax performance program.

We recognise the importance of the super guarantee to the Australian community, and its vital role in providing for people’s retirement. Our role is to administer the super guarantee system and the super guarantee charge.

We refer to the super guarantee gap as the net gap as it recognises the effects of our compliance activities. The gap without our compliance action is referred to as the gross gap.

For 2018–19, we estimate a net gap of 3.8% or $2.5 billion. Overall, the gross gap of 5.4% indicates that employers are paying more than 94% of the super guarantee they are required to pay without intervention from us.

See more about:

• the concept of tax gaps, including why and how we measure them and a summary of the latest available tax gap data in Australian tax gaps – overview
• our research methodology, data sources and analysis used for our tax gap estimates in Principles and approaches to measuring gaps
• more about the super guarantee in Super for employers.

Trends and latest findings

The benefit of estimating the super guarantee gap is in monitoring trends and developing insights over time. When looking at the estimates over the 2013–14 to 2018–19 period, we observe a declining trend in the net gap over the first four years of the period, before stabilising in the last two years.

Table 1 below shows the theoretical super guarantee amounts, adjustments, compliance amounts, amounts reported, and the gross and net gap estimates for the period 2013–14 to 2018–19. In 2018–19, approximately nine hundred thousand employers made contributions on behalf of around 13 million employees.

Figure 1 displays the gross and net gap as a percentage over the same period.

Figure 1: Super guarantee gross and net gap (percentage), 2013–14 to 2018–19

ATO action to reduce the gap

We are committed to actively reducing non-compliance and improving willing participation by employers in the super guarantee system.

As the estimated super guarantee gap does not identify the reasons for non-compliance, we focus on reducing non-compliance in three ways:

• Helping employers to get it right
• Helping employees understand their entitlements
• Correcting employers who don't get it right.

Helping employers to get it right

We offer support to make it as easy as possible for employers to understand and comply with their super guarantee obligations. This includes face-to-face interactions, phone calls, webinars, website content, printed publications, social media and in ATO communities.

At our tax professional open forums and small business conversations held across Australia, we focus on the importance of employers complying with their super guarantee requirements. We remind employers about super guarantee due dates and the consequences of not meeting their quarterly payment and reporting obligations.

The Small Business Superannuation Clearing House is a free service we provide to small businesses, which makes paying super easier and cuts compliance costs.

We also provide education and services to new businesses through our New to business essentials programExternal Link to support people in their crucial first 12 months of business.

Online tools include our:

• Employee/contractor decision tool – helps employers correctly determine if their workers are employees or contractors
• Super guarantee eligibility tool – helps employers work out if super guarantee is payable.
• Super guarantee charge statement and calculator tool – helps employers complete super guarantee charge statements

Some other ATO resources to help employers get it right include:

• How to pay super – explains to employers how they can pay super
• Super obligations for employers webinar – a more detailed look at super for employers. It explains which employees are eligible for super, how to calculate their super and what happens when super is not paid on time
• Super guarantee employer obligations course – a short online course for employers to improve their understanding of super guarantee obligations and super guarantee charges.

Further, we are helping small businesses and their advisers to better understand and manage their cash flow.

Helping employees understand their entitlements

Our activities are not limited to employers. We provide online super tools to make it easier for employees to understand and report unpaid super guarantee. We also provide employees visibility of contributions made to their super fund accounts, as reported to us by super funds, through ATO online services.

Tools for employees include:

• Am I entitled to super?
• Estimate my super
• Unpaid super – to help employees work out if they need to lodge a report to us
• Report unpaid super contributions from my employer

Correcting employers who don't get it right

Our super guarantee compliance program provides enforcement action to change employer behaviour and recover unpaid super guarantee. We address non-compliance through:

• investigating employee notifications – these are complaints made to us by employees or former employees about the non-payment of super guarantee
• data analysis to identify potentially non-compliant employers to undertake ATO-initiated reviews and audits.

Employee notifications

We receive reports from employees who believe that their employers have not met their super guarantee obligations. We review all notifications received.

Review and audits

We analyse data we hold, as well as information we receive from super funds, unions, government agencies and other third parties, on possible unpaid super guarantee. Where appropriate, we undertake compliance actions. In 2020–21, we examined the records of over 18,000 employers to address super guarantee non-compliance.

The super guarantee charge imposes nominal interest and an administrative charge in all cases, on top of the super guarantee shortfall. An additional super guarantee charge can impose further penalties of up to 200%

We examine every report of non-compliance, and we follow up with these employers. If necessary, we will undertake audits and apply penalties.

We also review super guarantee compliance in conjunction with pay as you go (PAYG) withholding tax audits targeted across a range of industries, regional areas and individual circumstances to address non-compliant behaviour.

We work across government to support and enhance our current super guarantee compliance approaches.

The introduction of pay event reporting by employers through Single Touch Payroll (STP) and transaction-based reporting of contributions by super funds will bring significantly improved transparency of the super guarantee system to the ATO and employees. We currently use the information from STP and transaction-based reporting of contributions to detect non-compliance earlier and have implemented differentiated preventative and corrective strategies where employers are identified as not meeting their obligations.

Methodology

The super guarantee gap is derived through applying a top-down approach.

There are six steps in applying the top-down methodology. These are expanded on below followed by a summary of the overall estimate:

• Step 1: Examine and select ABS Compensation of Employee data
• Step 2: Apply an uplift factor to allow for the shadow economy
• Step 3: Adjust for earnings not subject to super guarantee
• Step 4: Adjust for the impact of overtime
• Step 5: Estimate theoretical super guarantee liability
• Step 6: Estimate the gross and net gap
• Summary of the estimation process
• Limitations
• Updates and revisions to previous estimates

Step 1: Examine and select ABS Compensation of Employee data

In Step 1, we obtain salary and wages by industry estimates from the Australian Bureau of Statistics (ABS) Compensation of Employees (CoE) data set.

Step 2: Apply an uplift factor to allow for the shadow economy

We then apply an uplift factor (1.2%) to the data to account for unpaid super guarantee in the shadow economy. This covers activity such as paying cash wages or misclassifying employees to avoid paying the super guarantee.

In arriving at this uplift factor, we considered comparable international uplifts to wages and conducted analysis of our own data. In particular, we examined the large amount of data from our interactions with employers and our compliance activities that focus on the shadow economy.

We also undertake analysis to ensure there is no double-counting of activities that may have already been incorporated into the existing ABS data.

This analysis ensures our gap estimate is robust and reliable.

Step 3: Adjust for earnings not subject to super guarantee

Step 3 is to remove the proportion of earnings not subject to the super guarantee, such as:

• when monthly earnings are less than $450
• salary sacrifice amounts
• amounts above maximum super guarantee contribution base
• amounts associated with employees outside the super guarantee eligible age range.

We exclude any salary amounts of defined benefit fund members. Based on results from our compliance activities, any super guarantee gap relating to these members is expected to be minimal. Further, there are data limitations for this group, especially for unfunded defined benefit schemes where the employers do not actually make contributions.

Step 4: Adjust for the impact of overtime

In Step 4, we adjust the estimate of theoretical amounts of super guarantee (required by employers under the law) to remove the impact of overtime. This is achieved by applying industry-by-industry ratios of ABS average weekly ordinary time earnings (AWOTE) to ABS average weekly earnings (AWE) to the result from Step 3 at the industry level and aggregating them up.

This step increases the reliability, as it recognises the range of industry practices for overtime.

Step 5: Estimate theoretical super guarantee liability

Step 5 is to multiply the result from Step 4 by the statutory rate to estimate the theoretical super guarantee payable.

We then add back estimated theoretical super guarantee amounts of defined benefit funds members. These amounts should be included in the theoretical super guarantee liability. An equivalent amount would be added to the actual super guarantee contribution reported. This effectively gives no gap for this particular group.

Step 6: Estimate the gross and net gap

In Step 6, we examine annual data reported to the ATO by super funds. We take reported super guarantee amounts (including defined benefits) and remove certain reportable amounts (including salary sacrifice amounts), together with discounts and adjustments.

This amount is removed from the theoretical amount established (in Step 5) to arrive at the gross super guarantee gap.

We then factor in the increase in super guarantee liabilities from our compliance activities (for example, reviews and audits) and from employer voluntary adjustments.

The difference between the actual super guarantee contribution amount and the theoretical super guarantee contribution amount represents the gross gap. We factor in the results of our direct intervention (such as audit activity) to arrive at the net gap.

Summary of the estimation process

Table 2 displays the estimate amounts for the six steps of the super guarantee gap from 2013–14 to 2018–19.

Limitations

The limitations associated with estimation of the super guarantee gap are listed as follows:

• Limitations with Australian National Accounts data – as ABS Australian National Accounts data (National Accounts) is compiled from surveys and benchmarking activities, the outcomes are subject to sampling and non-sampling errors. In addition, as the data does not include estimates for impacts of the shadow economy on wages data, an uplift factor is required for the estimated gap. National Accounts data is also subject to revision. This will result in changes to the estimated super guarantee gap as we revise it in future years.
• Limited availability of ordinary time earnings data – we must estimate salary and wages subject to super guarantee using a discounting factor based on the ratio of average weekly ordinary time earnings (AWOTE) to average weekly earnings (AWE).
• Hidden wages – as highlighted in the Shadow Economy Taskforce final report, it is likely the uplift for hidden wages understates the true nature of the economic impact on undisclosed wages. We will be reviewing this estimate in the future with an expectation of an upwards revision.
• Salary sacrifice only includes salary sacrifice into super – we use salary sacrifice data provided by the ABS. While salary has been reduced by salary sacrifice in the estimate, there is no corresponding reduction in contributions required. Additionally, the salary sacrifice amount may represent the full amount of required super guarantee contribution depending on which salary base the employer had calculated the super guarantee obligation. This factor could lead to an understatement or overstatement of the gap. However, we believe the impact is relatively low.
• Restrictions on applying the methodology – used alone, the gap analysis cannot be used to    
  • identify specific instances of unpaid super guarantee
  • characterise industry or business sectors in the economy as susceptible to unpaid super guarantee
  • identify the specific sources of the gap.
   
• Definition of employee versus independent contractor – super guarantee contributions are payable for either    
  • employees within the ordinary meaning of 'employee'
  • employees that fall under the expanded definition, as long as they are not excluded employees, such as independent contractors.
   
• Gap estimates reflect trends in the overall system – super guarantee gap estimates cannot accurately predict the number of employees and employers affected. This is because there would be significant 'false positives' and 'false negatives' in the underlying data, which would distract from the true purpose of the gap estimate. Other approaches are more applicable to assess the impact of non-compliance on employees.

Find out about the difference between employees and contractors.

Updates and revisions to previous estimates

Each year we refresh our estimates in line with our annual report. Changes from previously published estimates occur for a variety of reasons, including:

• improvements in methodology
• revisions to data
• additional information becoming available.

Figure 2 displays the gross gap and net gap from our current methodology compared to the estimates released in previous years.

Figure 2: Current and previous super guarantee net gap estimates, 2009–10 to 2018–19

The data is presented in Table 3 below.

Reliability

We seek feedback and advice about the methods we use to estimate the gap from our external and internal subject matter experts. Based on the advice and assessment, the reliability rating for this estimate is medium (with a score of 19).

A medium rating means the gap is in a maturing phase and that material assumptions are tested through qualitative or quantitative methods. The rating also reflects that the estimate has a degree of uncertainty due to the methodological constructs, data limitations and margins of error inherent in the data.

The ABS regularly revise their Australian National Accounts data, including the Compensation of Employees component. This can lead to revisions to prior year gap estimates in future updates. We will continue to revise and where possible improve our estimate; including our understanding and estimate for the shadow economy.

Figure 3: Reliability rating scale from very low to very high – super guarantee gap