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  • Methodology

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

    There are 6 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

    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, for the 2021–22 and earlier income years
    • 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 us 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 6 steps of the super guarantee gap from 2013–14 to 2018–19.

    Table 2: Applying the methodology – super guarantee gap (value)

    Step

    Description

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    2018–19

    1

    COE salary and wage data ($m)

    686,956

    706,091

    727,219

    745,363

    782,164

    821,526

    2

    Shadow economy uplift (1.2%) ($m)

    8,243

    8,473

    8,727

    8,944

    9,386

    9,858

    3

    Less earnings not subject to super guarantee ($m)

    149,120

    151,681

    153,106

    156,822

    158,663

    166,709

    4

    Multiply by AWOTE to AWE ratios at the industry level to obtain salary and wages subject to super guarantee ($m)

    523,925

    540,542

    561,452

    574,771

    608,531

    640,565

    5.1

    Multiply by statutory rate (%)

    9.25

    9.50

    9.50

    9.50

    9.50

    9.50

    5.2

    Amount that should be paid ($m)

    48,463

    51,351

    53,338

    54,603

    57,810

    60,854

    5.3

    Add back defined benefits ($m)

    4,452

    4,390

    4,351

    4,141

    4,054

    4,086

    5.4

    Theoretical liability ($m)

    52,915

    55,741

    57,689

    58,744

    61,864

    64,940

    6.1

    Reported super guarantee (including defined benefits) ($m)

    49,486

    52,366

    54,349

    55,777

    58,416

    61,420

    6.2

    Gross gap estimate ($m)

    3,429

    3,375

    3,340

    2,967

    3,448

    3,520

    6.3

    Compliance outcome ($m)

    535

    552

    647

    826

    999

    1067

    6.4

    Net gap estimate ($m)

    2,894

    2,823

    2,692

    2,141

    2,449

    2,453

    6.5

    Gross gap (%)

    6.5

    6.1

    5.8

    5.1

    5.6

    5.4

    6.6

    Net gap (%)

    5.5

    5.1

    4.7

    3.6

    4.0

    3.8

    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.

    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

    Figure 2 depicts the net gap estimates from previously published years as outlined in Table 3.

    The data is presented in Table 3 below.

    Table 3: Current and previous net super guarantee gap estimates, 2009–10 to 2018–19

    Gap

    2009–10

    2010–11

    2011–12

    2012–13

    2013–14

    2014–15

    2015–16

    2016–17

    2017–18

    2018–19

     

    2017 program

    3.8%

    4.6%

    5.9%

    4.8%

    4.7%

    5.2%

    n/a

    n/a

    n/a

    n/a

     

    2018 program

    n/a

    5.6%

    6.5%

    5.3%

    5.2%

    5.0%

    4.8%

    n/a

    n/a

    n/a

     

    2019 program

    n/a

    n/a

    6.5%

    5.3%

    5.3%

    5.1%

    4.8%

    3.9%

    n/a

    n/a

     

    2020 program

    n/a

    n/a

    n/a

    5.6%

    5.6%

    5.2%

    4.8%

    4.0%

    4.0%

    n/a

     

    2021 program

    n/a

    n/a

    n/a

    n/a

    5.5%

    5.1%

    4.7%

    3.6%

    4.0%

    3.8%

     

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      Last modified: 01 Jul 2022QC 57181