The legally-chimeric character of superannuation contributions
The emphatic re-election of the Albanese Government has cemented, beyond any doubt, the commencement of the Payday Super reforms legislated during the last Parliament from 1 July 2026. In general, this will require employers to make superannuation contributions at the same time as they pay wages or salary in order to avoid the Super Guarantee Charge.
Among many compelling policy imperatives for this reform, the most common and deeply-felt justifications advanced was, in as many words:
‘Super is money we have earned. It’s workers’ pay, delayed for retirement, and there’s no reason why it shouldn’t be paid at the same time as ordinary wages…’
The essence of this argument is the idea that super is a form of remuneration; something given by an employer in exchange for an employee’s labour.
It's a common conception, and yet, it’s inaccurate. For the first 21-years of its existence, superannuation contributions were not, under Commonwealth legislation (as opposed to Enterprise Agreements or Industrial Awards), a workplace entitlement at all. While incorporation of superannuation contributions into the National Employment Standards somewhat altered this fact, it remains the case that under the originating Superannuation Guarantee Administration Act 1992 (Cth) (‘SGA Act’) and the related Superannuation Guarantee Charge Act 1992 (Cth) (‘SGC Act’), the making of superannuation contributions is not an obligation placed on employers, nor is it an entitlement vested in employees.
Rather, the making of superannuation contributions is a means by which employers can optionally avoid a tax – the Super Guarantee Charge. Indeed, to quote the shocking yet incisive findings of Justice Allsop, ‘An employer may lawfully choose not to make superannuation contributions to the requisite amount (under the SGA Act).’
A micro means to a macro end
How could this be the case? In the sagacious words of Winnie the Pooh, the beginning is a good place to start. Universal superannuation commenced in 1992 with the passage of two cornerstone bills; the SGA Act and the SGC Act. The former set out the manner in which superannuation contributions were to be calculated and made payable. The latter imposed the Super Guarantee Charge – payable to the Australian Taxation Office (ATO) – that employers would be liable to meet if they did not make superannuation contributions in accordance with the provisions of the SGA Act.
The parliamentary debates and inquiries preceding the passage of these laws demonstrates that universal superannuation was not seen as an industrial relations initiative centred on creating a form of reward or remuneration connected with either the volume or nature of hours worked by an employee. Indeed, the Commonwealth lacked the constitutional power to legislatively impose such a requirement – with workplace relations law (as distinct from conciliation and arbitration related to industrial disputes) largely remaining the preserve of the states at that time.
Rather, superannuation was about instituting a universal system through which employees could augment personal savings to relieve pressure on the aged pension; seen as the enduring pillar of retirement income. The objectives outlined in the second reading speech of then Treasurer the Hon. John Dawkins MP additionally centre on providing a coherent retirement savings vehicle, increasing overall national savings to reduce reliance on foreign capital, and increasing the level of superannuation savings per person.
The SGA Act: Mechanics and implications
This concept is made clearer when we examine the constitutional mechanics of the SGA Act and the SGC Act.
Each piece of legislation passed by the Commonwealth Parliament must have a nexus with one of the Commonwealth’s enumerated powers, i.e., the subjects in relation to which it is empowered to make laws. Prior to universal superannuation, many employees in unionised industries had gained the right to occupational superannuation contributions through the workings of industrial relations tribunals created pursuant to the Commonwealth’s legislative power.
To meet the objective of extending superannuation coverage to employees outside of the industrial conciliation and arbitration system, the Hawke Keating Government would require another source of power. The first ports of logical call were the Commonwealth’s ability to make laws concerning corporations, or invalid and old-age pensions. And yet, the Government ultimately proceeded under the ‘taxation’ head of power.
Why was this chosen? One of the objectives itemised in the Treasurer’s second reading speech was to ‘Provide an efficient means of encouraging employers to comply with award superannuation obligations.’ If super were instituted in a manner other than the tax system, employers would – in most foreseeable circumstances – have had a legal obligation to make the specified payments. But enforcement would be ad hoc, and restitutive action would most likely have required costly proceedings in court. By legally constituting superannuation as a tax obligation, the government was able to effect a carrot-and-stick commercial approach with comparative administrative efficiency.
Employers who made contributions in line with the SGA Act would be able to claim their payments as deductions. Those who did not make payments in accordance with the prescribed methodology would be liable to pay the Super Guarantee Charge; which would be the value superannuation contribution specified through the SGA Act combined with a set administration component and a percentage-based penalty component. Importantly, those electing to pay the Super Guarantee Charge would not be able to claim any portion of the payment as a tax deduction. And, by instituting super through the tax system, the government was (in theory) creating more compliance visibility – as related information would be detailed in quarterly statements and yearly tax returns. In short – there was a direct financial incentive for employers to comply with the SGA Act, a financial disincentive to not complying with the SGA Act, and the scope for greater visibility over employer compliance in what was then a largely paper-based system.
While this was an administratively expedient approach, it did ultimately rely on businesses making an economically rational decision. As with any tax deduction, it was incumbent on each eligible party to incur the cost necessary to claim it. But equally, as with any tax deduction, the decision not to incur the expense and instead bear a larger tax liability is equally lawful and valid. As observed by Justice Allsop in the case of Bluescope Steel v Australian Workers’ Union[1], ‘Failure to make the minimum superannuation contributions to reduce the chargeable amount to zero in accordance with the statutory framework is not penalised.’
Enter the Enterprise Agreements…
Examining the legislative architecture of superannuation in isolation, we can see that the making of super contributions was originally instituted as an optional yet commercially compelling means for employers to reduce their liability to pay the Super Guarantee Charge. It was not, under Commonwealth legislation, a workplace entitlement, or a form of consideration or remuneration for the provision of labour by employees.
Yet this would ignore the legislation’s interplay with the complex web of instruments which govern an employee’s contractual relationship with an employer. This includes employment contracts and, critically, Enterprise Agreements and Industrial Awards.
Bluescope Steel Pty Ltd v Australian Workers Union [2019] FCAFC 84
The case of Bluescope threw this ambiguity into stark relief. In the process of resolving allegations of superannuation contribution underpayments, the Federal Court was required to examine the structure and implications of clauses under Enterprise Agreements which related to superannuation.
The superannuation clauses under successive Enterprise Agreements read as follows:
1. 2006: ‘The Subject of Superannuation is dealt with exhaustively by federal legislation…This legislation, as varied from time to time, governs the superannuation rights and obligations of the parties.’
2. 2012 and 2015: ‘Superannuation arrangements are governed by Federal legislation… The Company will make contributions to an employee’s superannuation account at a minimum in compliance with the Superannuation Guarantee (Administration) Act 1992 (Cth), as varied from time to time.’
The plaintiffs submitted that the Enterprise Agreement purported to import the ‘obligations’ of the SGA Act into the Agreement; thereby giving these obligations the character of a term of an Enterprise Agreement. This would render the superannuation provisions enforceable under the Fair Work Act 2009 (Cth).
The respondent argued that the SGA Act and SGC Act set-out a methodology for calculating superannuation contributions which, if complied with, allows an employer to reduce their Superannuation Guarantee Charge liability to zero. Neither the SGA Act, nor the SGC, impose a legal requirement or obligation on employers to make superannuation contributions, and therefore, the effect of an Enterprise Agreement term which purportedly ‘imported’ obligations under those Acts was void.
The Court settled somewhere in between. It found that where an Agreement merely recognises that superannuation contributions are governed by Commonwealth law, the Agreement has not created an enforceable ‘term’, and the employer can elect to incur the Super Guarantee Charge. This was the case with the 2006 Agreement.
In contrast, where an Enterprise Award or Agreement uses language which ‘connotes obligation’, then the making of superannuation contributions calculated in accordance with the SGA Act becomes a ‘term’ of the Enterprise Agreement which, although not enforceable under the SGA or SGC Act per se, may nevertheless be enforced as a term of the Enterprise Agreement under the Fair Work regime. This was the Court’s finding in relation to the 2012 and 2015 Agreements, with the phrase ‘will make contributions’ deemed sufficiently mandative.
Construction, Forestry, Maritime, Mining and Energy Union-Mining and Energy Division Northern Mining and NSW Energy District Branch v UGM Mining Services Pty Ltd [2020] FWC 4913
If it is the case-by-case language of Enterprise Agreements and Industrial Awards which gives rise to an industrial obligation to make superannuation contributions, then it follows that this language can create an obligation to make superannuation contributions which may deviate from the contribution amount that an employer would pay to simply avoid the Super Guarantee Charge.
In the Fair Work Commission matter of CFMMEU v UGM Mining Services Pty Ltd, the superannuation-related clause of the Enterprise Agreement obligated the employer to make superannuation contributions on behalf of employees covered by the Agreement in respect of ‘ordinary time earnings.’ For contribution calculation purposes, the superannuation-related clause defined ‘ordinary time earnings’ as ‘rostered hours of work’ and expressly required that ‘allowances’ be included in the calculation of these earnings. In contrast, the SGA Act requires that superannuation contributions be paid with respect to ‘ordinary time earnings’, which is defined as ‘Earnings in respect of ordinary hours of work’. ATO Superannuation Guarantee Ruling 2009/2 clarifies that all hours worked are not necessarily the same as ‘ordinary hours of work, and that earnings in respect of ordinary hours of work do not uniformly encompass allowances.
It was accepted by both parties that the language of the Superannuation-related clause connoted obligation, and that the payment of superannuation contributions constituted a term of the Agreement. The respondent submitted that the Enterprise Agreement could not lawfully alter the definition of ‘ordinary time earnings’ provided for under the SGA Act, and that its obligation to make superannuation contributions under the Enterprise Agreement should be read-down to the definition of ‘earnings in respect of ordinary hours of work’ defined under legislation.
This argument was rejected by Deputy President Saunders. It was acknowledged that an Enterprise Agreement cannot vary the definition of ‘ordinary time earnings’ which is listed in the SGA Act for the purpose of determining the superannuation contributions which an employer must make to avoid paying the Super Guarantee Charge.
Importantly, however, the Commission rules that that parties to an Enterprise Agreement were at liberty to negotiate and include terms imposing obligations on an employer to make superannuation contributions that exceed that which an employee would receive for the purposes of the SGA Act.
To avoid the Super Guarantee Charge, the employer could rely on the definition of ‘ordinary time earnings’ set-out under legislation. To avoid breaching a term of the Enterprise Agreement, however, the employer was bound by the novel definition of ‘ordinary time earnings’ set-out under the Agreement.
The National Employment Standards – whose claim is it, anyway?
An employer’s legally valid (but commercially disadvantageous) ability to pay the Super Guarantee Charge in lieu of making superannuation contributions was somewhat altered by the passage of the Fair Work Legislation Amendment (Protecting Worker Entitlements) Act 2023 (Cth) sch 3 Act.
Under the provisions of this Act, an amendment was made to the National Employment Standards that now obligated employers to make contributions to a superannuation fund for the benefit of an employee – to the extent needed to avoid liability to pay Super Guarantee Charge under the SGC Act. Under the Fair Work Act 2009 (Cth), a failure to comply with a provision of the National Employment Standards is a civil remedy provision. Under the Act, Employee Organisations and registered Employee Associations (i.e., unions) may seek orders in respect of alleged violations of the civil remedy provision. The Fair Work Act expressly requires that any orders subsequently obtained ‘Reflect the principle that unpaid superannuation contributions should usually be paid to a superannuation fund for the benefit of the employee’. This effectively mirrors Part 8 of the SGA Act, which requires the ATO to remit an amount of money equal to the superannuation contributions which would otherwise have been made by an employer to an employee’s superannuation fund when collecting the Super Guarantee Charge from an employer. This effectively gives employees the ability to initiate an action for the recoupment of money owed to the ATO from which they will ultimately benefit. But the intrinsic nature of unpaid superannuation contributions as a debt to the ATO, rather than payments due as consideration for an employee’s labour, remains unchanged.
The takeaway…
‘A fair day’s pay for a fair day’s work’ is, consciously or otherwise, the bedrock principle that underpins common Australian perceptions about workplace law. Employees and employers typically yet inaccurately view superannuation as an element of this compact; deeming superannuation to be a form of reward or remuneration tied to and given in exchange for an employee’s labour. This perception belies super’s policy provenance and legal reality.
Superannuation contributions made in accordance with the SGA Act are not an employer obligation or an employee entitlement. These contributions are a means by which employers can, but are not obligated to, reduce their liability to pay a tax – the Super Guarantee Charge – to zero.
The situation is complicated by Awards and Agreements. Awards and Agreements create enforceable terms which govern an employee’s workplace entitlements. These instruments can give rise to a direct employee entitlement to superannuation where the language of ‘obligation’ is used to require that an employer does make superannuation contributions. However, superannuation clauses which are stative, and merely reference that ‘superannuation entitlements are governed by the SGA Act’ will not create an actionable obligation or entitlement. This is because, as we have seen, the SGA Act itself does not create an industrial entitlement or obligation per se.
And, if that weren’t enough, Awards and Agreements may use the ‘language of obligation’ to create terms that require superannuation contributions to be made with reference to methodologies which differ from the SGA Act. Such terms create a direct, actionable entitlement for superannuation to be paid in accordance with the prescribed methodology. An employer’s failure to pay super on these terms will not ipso facto create a liability to pay the Super Guarantee Charge; but it may constitute a breach of a ‘term’ of a workplace agreement. Under the Fair Work Act, this may give rise to an actionable claim which employee representatives may pursue on behalf of the relevant employees.
My right? Your obligation? A debt due the ATO? With super, the answer simply isn’t simple.
[1] [2019] FCAFC 84