Pam Roberts
Technical

Industrial Revolution – How does Superannuation fit into the new Fair Work regime?

By Pam Roberts

When the Rudd Government announced that it would be returning superannuation as an “allowable” matter for new industrial awards, many in the industry thought “why bother?”. Superannuation Guarantee law requires employers to pay 9% to super for employees and sets out requirements for default funds where the employee does not exercise their right to choose a fund for their contributions. Why then do we need super back in awards?

Nevertheless, the Government has persisted, and super is now a key component of the new industrial regime, and the new “Modern” awards. The new “Modern” award system has far broader coverage than the old federal award system, and employers need to be aware of where they stand.

Who is covered by what?

1. Enterprise agreements:

If a workplace is covered by an enterprise agreement, the terms of that agreement apply.

  • Most enterprise agreements set out super arrangements for employees and specify the super fund to receive contributions. However if a particular agreement is silent on super, unless a variation is made, the employees’ super arrangement may default to a Modern award (below).

2. Modern Awards (Federal):

These apply where there isn’t an enterprise agreement covering the employees, and the employer is a company (Pty Ltd or Ltd) or in Victoria, ACT and NT1.

Modern awards don’t apply to employees on $108,300 plus salary (indexed).

Modern awards commence 1 January 2010 and the model superannuation clauses specify:

  • That super contributions are covered by Super Guarantee (SG) law.
  • The default super fund to which contributions must be made if an employee does not exercise his/her right to choose a super fund. In the Modern awards, default funds are either named industry super funds or a super fund the employer was contributing to on 12 September 2008 (or any successor fund to any of these funds).
  • A number of modern awards also specify that the employer must, at the employee’s request, withhold after-tax personal contributions and forward them to the fund.

Comment

The key issue with modern awards is their wide coverage. If an employer client is incorporated, this means they are now covered by a modern award, unless they have an enterprise agreement or have salary over $108,300.

3. Individual Transitional Employment Agreements and Australian Workplace Agreements.

There are no new individual agreements allowed from 1 January 2010 however existing ones can still operate until they expire up until 31 December 2012.

  • If an employee has an AWA, check to see if it included a super clause as many agreements did not include a super clause. This may not be a big issue as these employees are likely to have also actively chosen their super fund.

4. State awards and agreements

In all states except Victoria, state awards can still apply but they are limited to unincorporated employers (i.e. not Pty Ltd). The Modern awards do not apply to these employers.

5. Individual contracts.

Employees on $108,300 are outside the ambit of the Fair Work laws and the Modern awards and their employment arrangements are governed by their employment contracts.

However there will be some employees who are currently on employment contracts whose salary is under $108,300 who may fall in under a Modern award.

How do the Modern Awards affect employer clients and their advisers?

  • Initially at least, if an employer has been making contributions since before 12 September 2008 to a corporate super plan (the “grandfathered plan”) as the default fund, SG contributions can continue to that plan after 1 January 2010 under the Modern awards.
  • Further if the “grandfathered” pre 12 September 2008 super fund is transferred to a “successor fund”, the new super fund can retain the default fund status under the Modern awards. Extending default fund status to a “successor” fund is a welcome improvement recently announced by the Australian Industrial Relations Commission2.
  • However a new employer starting out after 12 September 2008, will have their employer super options limited. If they wish to provide a corporate super plan to employees, the employer will need to have either an enterprise agreement naming the fund or (more likely) the employees will need to choose the corporate plan. So far, corporate super master trusts have been, by and large, excluded from being named alongside industry super funds as default funds under Modern awards.
  • In a few cases, employers have been contributing “mandated” (or award) contributions for employees aged 70 or more (i.e. past the age where SG contributions cease), under old awards. This can continue if the contributions are being made under an enterprise agreement or state award, however if a Modern award applies, mandated contributions are SG contributions and must cease at age 703.

Comment: Where to from here?

Over the past year there has been a lot of (heated) debate over the role of super in the new Modern award system, and particularly the naming of default super funds in Modern awards. And it hasn’t just been the usual Corporate Super Master Trust v Industry Fund debate either. The Modern awards will reduce over 2400 old federal and state awards to around 120 mega Modern awards. Therefore the industry fund that gets named in the Modern award gets a huge free kick, not only over the unnamed Retail Corporate Super Master Trusts, but over other unnamed industry funds. Considering most ordinary employees don’t exercise “choice of fund” and SG contributions are then paid to the default super fund, there is a lot a stake.

The key point here is that the issue of default super funds should not be decided by the Australian Industrial Relations Commission as a part of Modern awards. The appropriate place to determine what type of super fund can be a default fund is the Cooper Review into superannuation.

1 It also covers commonwealth employees, and some employees in the airline, waterside and maritime industries. Basically wherever the Commonwealth Government has power under the Australian Constitution to make laws. Unlike other States, Victoria handed the Commonwealth, constitutional power to make laws on industrial relations.

2 25 September 2009 Statement by the Full Bench of the AIRC

3 Non-mandated employer contributions such as salary sacrifice contributions can be made up to age 75 if the employee works 40 hours over a 30 day period during the financial year.