Gig economy presents challenges for your future
Superannuation | 10/04/2018 |
4 min read
If you’re a contract or part-time worker, the chances are that your super is lagging behind that of people with similar skills and qualifications in the full-time workforce.
While it’s become popular to talk about this in the context of the ‘gig economy’, which is really the growing trend in self-employment and casual work, this is an issue that’s been around for quite some time. In fact, around 30% of Australians are employed in contract or part-time work and have been for some time, particularly women whose super savings generally lag their male colleagues by more than 40%.
A couple of key things drive this issue:
- Employers are not obliged to pay super contributions for people earning less than $450 a month. Even if you have three jobs with different employers and each pays less than $450 a month, non of those employers are required to pay super contributions for you;
- If you’re a contractor, there is no obligation for an employer to pay super contributions for you.
Industry commentators have proposed a number of solutions, from mild to quite radical transformation of the superannuation system. The truth is that most systemic solutions are not easy or perfect. Most proposals involve legislative change and/or workplace reform.
One proposal being pushed by the superannuation industry is to remove the $450 minimum threshold for super contributions. It seems obvious, but there is a strong argument that says people on low incomes are unable to afford even a modest deduction of super contributions from their pay.
Implementation would probably require monitoring and perhaps even collection and distribution of some super contributions by the Australian Taxation Office (ATO), which is the only single body that collects real-time, comprehensive data on payrolls.
You could argue for an opt-out system, in which lower paid workers could instruct their employer not to deduct super contributions from their pay. This would mean that employers would pay contributions on behalf of everyone, but it would add complexity and additional payroll reporting requirements for a regulator like the ATO.
What defines a contractor adds another layer of complexity to this. Self-employed people may prefer to work under commercial contracts, possibly by registering a business as a sole trader. Online platforms like freelancer.com and airtasker.com exacerbate this trend. (The ATO provides information on how it defines employees and contractors on its website)
People choosing to work this way generally invoice employers for work undertaken and they are not captured in the payroll, even if the majority, or even all of their income, comes through a single contract.
Another piece in the jigsaw is non-compliance by employers, sometimes collaborating with employees, within the existing system. Under the counter cash payments to employees that are not captured in payroll are still prevalent in some businesses, with Industry Super Australia claiming about three million employees are missing out on approximately $5.6 billion of super contributions per annum. The ATO puts the number at a more conservative $3 billion a year. Regardless, it’s still a big number.
When you think that many of those affected will be younger Australians in casual and part-time jobs, the impact on investing earnings over the 40 or so years to retirement will be massive and have a significant impact on their future financial outlook.
One positive step in ensuring greater compliance will be the introduction of Single Touch Payroll (STP) for employers with 20 or more employers from 1 July 2018 and all employers a year later. This will capture superannuation contributions information in payroll reports to the ATO.
Of course if you think you are someone who is missing out on super contributions, there are actions you can take:
- If you’re self-employed or a freelancer and earn less than 10% of your income from an employer, you can make contributions to your super fund and deduct any contributions up to $25,000 per annum in your tax return;
- If you are in casual work and paid less than $450 a month by one or more employers, you can ask your employer pay contributions on your behalf or make contributions from your earnings yourself in the same way as self-employed people;
- If you are earning more than $450 a month and your employer is not paying contributions, you should talk to your payroll or HR office. You can also report it to the ATO if you feel you cannot talk to your employer about it, or your employer refuses to comply.
Remember also that if you are a low income earner, your super may be boosted by a Government Co-contribution.
You can download our Super Boosters fact sheet here for more information.