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Economics References Committee
Superannuation guarantee non-payment

FAROUQUE, Mr Hamid Mohamed (Kamal), Principal, Maurice Blackburn Lawyers

O'BRIEN, Mr Liam, Victorian Branch Assistant Secretary, Australian Workers' Union


CHAIR: Welcome. Thank you for appearing before the committee today. Do you have any comments to make on the capacity in which you appear?

Mr Farouque : I work in the industrial and employment law section of Maurice Blackburn Lawyers.

Mr O'Brien : As well as being the Victorian branch assistant secretary, I am also a national vice-president with the AWU.

CHAIR: I invite you to make a brief opening statement, should you wish to do so.

Mr Farouque : Some of the expertise that we at Maurice Blackburn bring to bear on this situation is our experience of wage fraud situations. We have represented a number of workers who were underpaid in the context of the 7-Eleven wage scandal. In that context nonpayment or underpayment of superannuation has applied or occurred in 100 per cent of the cases where we have acted for particular individuals. In circumstances where there is wage fraud, nonpayment of superannuation is inevitable, because the nature of wage fraud involves things like cash payments, characterising relationships as independent contracts when in fact they are truly employment relationships, dodgy payroll records and recording 100 hours worked instead of the reality, which is 200 hours worked. This has a massive impact, obviously, upon the retirement income of vulnerable workers. It hits the most vulnerable workers in a number of sectors, such as the farm sector, retail and the fast food industry.

Furthermore, it has another perhaps less well-known impact. There are benefits which hang off superannuation in the nature of total and permanent disability payments and income protection insurance payments. My firm has acted for a number of people who have sought to access those benefits in circumstances where they have suffered catastrophic injury or serious health events and have found because of the nonpayment of superannuation they are in fact unable to access those benefits under a superannuation policy's benefit that they would otherwise receive. This obviously has a huge impact on those people and their dependents and devolves burden on the taxpayer because if you are not getting income protection insurance you are going to have to support yourself through some means and you are going to have to look to social security payments. So it is a significant problem which I think needs to be addressed.

CHAIR: Thank you. Mr O'Brien, do you have an opening statement?

Mr O'Brien : I will just say a few words about the AWU's experience not just of wage fraud but of superannuation underpayments. As you are probably aware, the AWU represents nearly 100,000 workers across the country, with 15,000 workers in Victoria. They are mainly in the manufacturing, construction, pastoral and agricultural sectors but also in a wide variety of miscellaneous industries from funeral directors through to hairstylists and swim teachers.

To reiterate some of the comments that have already been made, we believe super is deferred wages. It is an industrial right. It has a history embedded around the deferment of wage increases from when the scheme was first introduced. We very much see superannuation as an industrial right. It has, however, as some of the speakers before have said, a very different nature both in the way in which it is administered and in the way workers detect said underpayments. The easiest way I can describe it for a lot of workers is that if I am paid wages and I receive a pay slip I can look at my bank account tomorrow and see that the money has gone in there. It is immediate. With superannuation, when we think of workers suffering from wage fraud or any sort of underpayment, it is making that first identification that is really the tell-tale problem that a lot of workers face. Particularly for young workers and migrant workers and people who do not necessarily understand what their rights are, superannuation is an added level of complexity particularly around that deferred arrangement. It is not just in terms of when you receive superannuation. For many of these people it might be 40 or 50 years later. As a 35-year-old I wonder when I will ever be able to see it. For young workers it is also the time taken from when it is on your pay slip to when it is actually in your fund.

The second element, as has been spoken to before, is the issue around compliance. Where do you go when your super has not been paid? Traditionally we would have workers who have suffered wage fraud come to us. As we have said before, any worker who has suffered from underpayment of wages has automatically suffered a loss in super. It is still complicated to go and get underpaid wages dealt with. We would probably first go to the Fair Work Commission to try to conciliate an outcome with the employer depending on whether there was an award or an enterprise agreement entitlement that existed. But then it seems to go to the industrial division of the magistrates court. As has been said before, that might work satisfactorily with regards to unpaid wages but it is very complex for workers who are seeking to have their superannuation dealt with.

Those are the general themes that we would like to talk to today from our experience bot with unpaid wages and with regards to superannuation. I would also say with regards to wage fraud generally that it goes hand in hand not just with unpaid super but also more generally with other conditions. So workers who have less knowledge about their industrial rights are also going to be less aware of the obligations with regards to super. That creates a really significant issue for workers, whether they be young workers or migrant workers, who are trying to navigate a pretty complicated system.

CHAIR: Mr Farouque, given that you are saying that superannuation is deferred wages and an industrial entitlement, do you think that super should be given the same priority as unpaid wages particularly in the cases of, say, insolvencies? Do you think it should be given the same sort of status and importance?

Mr Farouque : Yes, I am definitely of the view that it should be given equivalent status or should be regarded as having equivalent status. The difficulty for many workers, in terms of the entitlement, is the source of the obligation. Workers who are covered by awards have, in most instances, an entitlement to superannuation under the award or under an enterprise agreement if it contains a superannuation term. Then there are those who have to rely predominantly on the superannuation guarantee charge scheme to have an entitlement, so to speak, to superannuation. It is a bit of patchwork in that regard, in terms of workers being able to access and enforce their rights. I think that is a critical issue.

CHAIR: For workers under awards or enterprise agreements, is there anything that gets in the way of their superannuation being treated as having the same status as unpaid wages?

Mr Farouque : There is nothing directly that gets in the way, in my understanding. But, in my experience, the critical issue for those workers is—and this is borne out by a number of examples that we have had to deal with over time—the inability to enforce those rights. That might arise from: a lack of knowledge about those rights; the complexity of navigating the system and the enforcement mechanisms, which are divergent in some respects between potentially, from a regulatory perspective, the Fair Work Ombudsman and the ATO; and the inability in many instances for those workers to confer a right of standing to enforce upon bodies or organisations which might be better resourced to perform that function—for example, their industrial organisation, their union, or the relevant superannuation fund of which they are a member. Those are limitations in the system which really need to be addressed as a matter of priority, to create a greater capacity, among those who have the resources to enforce, to readily enforce. I think those are critical issues that need to be addressed.

CHAIR: How do you overcome these limitations?

Mr Farouque : There is likely to be a need for legislative reform to confer a right, for example, upon an individual to have their union enforce their right, even if it does not arise under an award or a certified agreement. Unions have rights to enforce those entitlements. Another way to do it is to create standing on the part of superannuation funds to enforce those obligations. I say that because it is inherent that a superannuation fund is going to have significantly greater capacity, expertise and resources to engage in the activity of enforcement. Rather than leave an employee on their own, I think it would be preferable that it be conferred upon organisations which have those resources.

The other thing is to perhaps look at converging in a regulatory sense—more of a one-stop-shop approach to the regulatory bodies that enforce superannuation. That might mean converging some of the existing mechanisms, such as director penalty notices, with the capacity of the Fair Work Ombudsman to prosecute in relation to awards and enterprise agreements so that there is more of an integrated approach. We have dealt with a number of instances where workers are quite uncertain about where they can go to enforce entitlements. That is a very complex environment for a worker to navigate, in my experience. It can be complex for a lawyer of significant experience to navigate, let alone a worker who does not have that expertise.

CHAIR: Why is it so difficult for workers to be able to confer standing on other entities to pursue superannuation?

Mr Farouque : Certainly under the Fair Work Act one of the difficulties is that a union can at present enforce obligations under awards and enterprise agreements which cover that particular worker, and the union has to be entitled to represent the industrial interests of that particular worker. But, if a worker does not have an entitlement to superannuation under that particular award or enterprise agreement, then, in terms of the other mechanisms, the administrative mechanisms through the tax office, that is not something that a union has particular standing in, to enforce those entitlements through the SGC legislation so that is a difficulty. There is obviously inherent in any enforcement activity the cost and time associated with it.

One of the other issues which often comes up in these circumstances is the intensive activity required to prove a particular entitlement. In many instances of wage fraud, we are dealing with circumstances where the employer has not retained any records—in a lot of instances that is just through deliberate practices—and essentially one is left, through oral accounts through the employee, to try to establish times worked, days worked, over a considerable period of time, and this can extend over many, many years.

The task associated with that is very significant. In one instance, for example, we represented a 7-Eleven employee who worked two separate stints over about six years. The total underpayment ultimately assessed was in the order of about $198,000. The amount of superannuation he was ultimately paid was in the order of $17,500. That is over many years. And those examples, I think, economy-wide, are not going to be particularly rare in sectors where vulnerable workers are particularly exposed to exploitation.

CHAIR: Perhaps, if you take us to the 7-Eleven case or the Swimland case. For example, how did they employees know they were being short-changed in the first place? And perhaps you can take us to how that all ensued.

Mr Farouque : I am happy to say something about 7-Eleven very quickly. It was obviously as a consequence of the publicity, the investigation conducted by Four Corners and Fairfax, which crystallised the 7-Eleven story into the public domain. That public awareness, and the subsequent response to that, generated, I think, a degree of awareness amongst workers who had been the subject of this exploitation. In fact, they had probably in many instances been underpaid. Secondly, there were places they could go to try and have that issue addressed. So it was really as a consequence of that that scandal emerged in the public domain and that the subsequent remedial action was able to be taken.

CHAIR: How difficult is it to calculate superannuation entitlement. I know it is by virtue of looking at ordinary time earnings. Can you explain how labour intensive it is to dig down and work out an exact entitlement to superannuation?

Mr O'Brien : Maybe I can pick up on your question previously on protection. The Swimland story is quite interesting. These kids essentially found it by accident. One of them was instructed to double-check a cleaner's pay rate and, upon doing that, he discovered that he himself had been underpaid, which then opened up an underpayment claim for him and his colleagues at one site alone—in the order of $250,000 across that site and we suspect over $1 million across the whole business.

I will move on to your question: 'How do you calculate ordinary time earnings?' For a lot of workers who work Monday to Friday, a standard set of hours, this is not a complicated matter. For workers who work casually, do weekend work, have different sets of hours—potentially they might have bonus arrangements, things like that—it is a far more complicated matter. And, again, that sort of layering of the system, in terms of what obligations exist within the SG versus potentially under an award, make it far more complicated for a trained lawyer or union official, as Mr Farouque said, let alone a worker, to help assess. So it is very difficult we would say.

CHAIR: And have you had experience in dealing with the Fair Work Ombudsman or the ATO in relation to superannuation for a company?

Mr O'Brien : Our experience in terms of the Fair Work Ombudsman—we would say they do have the power to look at unpaid super, but we would say that the practice is that this is more often than not something that is referred off to the ATO as the specialists in this area. We will often have situations where we are dealing with the Fair Work Ombudsman and we are getting unpaid wages dealt with at a reasonable pace but superannuation is lagging behind because of the issue that we have talked about there. Again, it does come down to a little bit of data issues; the Fair Work Ombudsman probably does not necessarily have access to that data. And realistically it could be resolved from better cooperation between the two, but it is definitely two streams and one does seem to move faster than the other.

CHAIR: So do you have any views about trying to align enforcement and penalties between the Superannuation Guarantee (Administration) Act and the Fair Work Act? How can we improve the system there?

Mr O'Brien : Again, I come back to the central point, which is that superannuation is an industrial right. It should be treated the same. I note the comments before; it is very much an individual right and an individual benefit. It is different from, say, taxation. And, whilst the ATO definitely has some great resources available in terms of being able to identify through data, it should be seen as an industrial right and administered accordingly—through the Fair Work Act, if changes need to be made there, but in particular the Fair Work Ombudsman should be charged with responsibility through chasing this up.

CHAIR: And do you have a view about payslip reporting and how that could be improved to enable employees to identify when they have been underpaid better?

Mr O'Brien : Anything additional that we can put on the payslip that not only talks to what is owed but what is actually being paid and transmitted would assist. I would also talk to—I think there are definite issues around the frequency of payments and how funds can assist workers in terms of being able to show transaction histories and making those tools available, but also there is that time lag that happens from when it is first due until that payment happens which can be up to four months. That makes it hard for everyone in the system, whether it be the fund or the worker, to identify noncompliance—so, I would say, not just in terms of payslips but in terms of frequency, which super should be remitted.

CHAIR: Do you think the ATO is doing enough to proactively monitor the nonpayment of superannuation? Do you have any views on that?

Mr Farouque : I can say that, anecdotally, that from my experience when I have had people speak to me about unpaid superannuation and I alert them to the capacity to report to the ATO instances. I have had responses back saying: 'We've done that already. Nothing much seems to have happened' et cetera. That is my anecdotal experience. And I think it would just be more effective if there were other sources of assistance that workers could access as well. My sense is somewhat similar to what Mr O'Brien said; in essence, when people contact the Fair Work Ombudsman they are generally referred to the ATO. So they might be on some wages and similar issues dealing with the Fair Work Ombudsman, but in relation to superannuation they are being referred to the ATO. So that divergence is, I think, problematic and complicating for enforcement purposes. I think there are some elements of the current system which one would need to adapt to any revised system, but I think, from a regulatory perspective, a one-stop shop type mechanism, so that people do not get moved on or moved back and forth between regulators or departments, is a better way to look at a new system.

CHAIR: That one-stop shop being the Fair Work Ombudsman?

Mr Farouque : That is right. I think, ultimately, from an entitlements perspective, that is preferable, but it has to be accompanied by a much higher degree of resourcing in terms of its capacity to enforce these obligations. I understand that their budget has been reduced in previous budget cycles. I think the number of inspections they do has tracked down in the last few years, so, obviously, if the Fair Work Ombudsman is going to be given a greater mandate to enforce superannuation entitlements then it has to, inevitably, have a greater degree of resources that are tasked to that particular function or, essentially, into the general capacity to regulate and enforce wage fraud situations.

CHAIR: I suppose there is a logic if the Fair Work Ombudsman is in the trenches looking at unpaid wages and in a position to look at ordinary time earnings as part of that analysis. There is a lot of work already being done there which would be duplicated somewhere else if it had to be.

Mr Farouque : That is right. I think focusing the expertise and resources would definitely be a useful thing. I do not think it should be exclusively within the domain of the Fair Work Ombudsman. Obviously people should be able to continue to have the capacity to enforce things in their own right by first standing upon their union or their superannuation fund to engage in the enforcement activity. Certainly those organisations are probably more likely to have expertise to deal with those issues well beyond that which an individual has.

CHAIR: In terms of company records, do you have any views about what the signs are that employees should look at—or regulators—in terms of any deliberate attempts to underpay people superannuation?

Mr Farouque : Certainly, from an employee perspective, the absence of initial things, such as a letter of appointment, a fair work information statement or cash payments—which are characterising that relationship as an independent contactor relationship and the like—are all very good signs that this is going to be an environment of, I think, noncompliance. The flip side to that is that many employees, particularly vulnerable workers, may not be aware of their rights. Or even if they have some sense that it is not quite right, they have very limited other alternative employment options, and that is very disempowering for them to actually raise issues. They are fearful of losing their job and the like. Those are very good pointers to the fact that you may not get your superannuation or, in fact, just your ordinary minimum wage.

CHAIR: Who else is in a position to notice some of the signs you have talked about? Should accountants have some sort of duty to identify this as a problem and report it, perhaps?

Mr Farouque : I think that is one option to deal with the issue—an obligation on accountants. To be meaningful at all, it would have to, obviously, attach to company accountants to report these obligations. Obviously many of the vulnerable workers are getting accountancy assistance in relation to their financial circumstances and their tax circumstances. That is potentially one way to deal with the issue—some form of reporting obligation.

CHAIR: What happens when companies do not keep records? They are supposed to keep them for seven years. What happens when that does not happen?

Mr Farouque : There are penalties which attach to companies under the Fair Work Act and the regulations for not maintaining records. They can be exposed to penalty proceedings under the Fair Work Act for that act of noncompliance. That is obviously an issue for those employers—a regulatory risk for them. The fact that these provisions exist in legislation is not the sole thing which drives behaviour. There also has to be, I suppose, a culture of compliance and a culture of enforcement which facilitates that particular outcome.

CHAIR: Mr O'Brien, did you have any record-keeping difficulties with your case at Swimland?

Mr O'Brien : It is important to note Swimland is not a small business by any stretch. It employs 650 employees. What makes this sort of area much more complex is when people work irregular hours. I think the business itself will attest that managing those records is not a simple matter. We see this very often: small businesses and underpayment issues. And, similar to what Mr Farouque said, we have to then reconstruct hours records, wages records et cetera, and we would say the penalties for noncompliance in that area are not sufficient enough to motivate those businesses. Typically, what we see in wage fraud issues are people who are not working regular hours and therefore there are added levels of complexity in terms of making sure those records are accurate. It might be making sure that we know that somebody worked a night shift or on a Sunday or at a time which might have attracted a different payment. That level of complexity, I think, some businesses potentially struggle with. In particular, workers also struggle with knowing what is right at a certain time of day to be paid. I would say, similar to what previous witnesses said, there is a component which is complexity. I also think the cash flow issue is definitely an issue for some businesses. We have seen it in the Swimland case where back pays were delayed to deal with some of these matters in terms of cash flow. In the case of unpaid super, that has been rectified thus far in this case. It was an issue where underpayments were made against the applicable award. Obviously, when they were corrected superannuation needed to be apportioned for for the future payments. The complexity of records is definitely an issue in relation to determining what someone's super should have been.

CHAIR: Do you have a view about whether the penalties make an adequate distinction between unintentional noncompliance and intentional noncompliance?

Mr Farouque : In the current penalty regime, there are maximum penalties under the Fair Work Act of $54,000 for corporations and $10,800 for an individual. In assessing what penalty is imposed in any particular instance, the court will take into account the degree of culpability. If the employer has embarked upon a deliberate scheme, in assessing what penalty to apply the court will take into account considerations such as the need for specific deterrents and general deterrents, but in doing so the scale of penalty that it can apply for any individual breach for a corporation is limited to $54,000. I know there have been proposals for legislative reform to increase the quantum of penalties which apply. I think that is necessary. I think that the quantum of the penalties and the inspiration should be directed at the types of penalties that apply to corporate misconduct in the corporate regulatory sphere. In recent amendments—as an example, the Fair Work (Registered Organisations) Act—there are considerably increased penalties upon industrial organisations for breach of that legislation. I see no reason why there should be a lesser quantum of penalty on corporations who engage in systematic acts of underpayment and nonpayment of superannuation and like entitlements. I think it is necessary that there be a higher level of penalty which is paid by those employers for those acts of noncompliance.

CHAIR: Do you have a view about the direct-to-penalty-notice regime that has been revised? Do you think that is effective?

Mr Farouque : I have looked through that scheme. I have not had any direct experience of it, but I think it is obviously useful in terms of the mechanism. If there was to be a revised regulatory environment, I think it would be inherent that an element of the enforcement mechanism, such as that, would be part of the revised enforcement environment. I think it is important that directors who do not pay superannuation have visited upon them personal liability. I think it is very important that that be part of any revised regulatory system.

CHAIR: Mr O'Brien, what was the hardest part of your job dealing with the Swimland underpayment issue? What were the major stumbling blocks for you to support your members in that area?

Mr O'Brien : It was the size of it—similar to the 7-Eleven sorts of numbers. We are talking about hundreds of employees, about a lot of employees who did not have a base level of industrial knowledge. Most of these employees were between 16 and 23, so there was a large knowledge gap to bridge with the workforce about what their rights were. Again, I think it goes to the complexity of hours. When somebody is working across a seven-day period and there is complexity that goes with trying to calculate different times—in any given week their hours will be different from week to week—that makes the issue more complex.

In relation to super, whilst I would say that it was not an issue in relation to Swimland, our experience has been that, again, because of the deferred nature of payment, it is in many ways sort of deprioritised for the worker: 'I really want to make sure I get my back pay sorted,' and it sort of gets pushed off. They obviously want it—it is definitely an entitlement they want to see administered—but there is a disconnect because of the time that is taken between its being remitted to their fund and the complications that go with that. What I think would be far more effective in being able to detect these things would if we could see the transaction happen like wages, with a similar frequency

CHAIR: What about record keeping? Was there any obstruction by the employer?

Mr O'Brien : No, not in this case—not in the case of the swim teachers. The record keeping was more about the varied hours and making sure that those were collected. In this case, employees are required to record their hours on an app. It is not a clock in, clock out system, as a lot of workplaces are, which then creates a whole range of issues about the data that is put in. Is it accurate? Is it actually the hours that you worked? We have instances where employees were actually required to be at work before their start time to perform some pre-brief duties and were also required to stay back, but there was always a lot of pressure about what was actually put down in their records versus what was actually worked. We would say, in particular, with a vulnerable workforce, potentially they were told, 'Your shift is 10 to 1,' but they were actually supposed to be there at 9.30 and they would be potentially asked to stay back as late as 1.30. Those hours are not recorded. That has been an issue in relation to swim teachers, because there is that disconnect between what they actually worked and the record that was put in.

CHAIR: Which does cause issues for workers compensation and things like that.

Mr O'Brien : Yes.

Senator HUME: Mr Farouque, I want to clarify: you are saying that you are supportive of the Fair Work Amendment (Protecting Vulnerable Workers) Bill, which is before parliament at the moment, which increases those penalties 10-fold and increases funding to the Fair Work Ombudsman, amongst other measures. Is that what you are saying?

Mr Farouque : I am supportive of measures that increase the capacity to enforce, and the capacity to attach obligations upon organisations such as franchisors, so that the responsibility and the capacity to recover is enhanced. Obviously that bill is progress, but it has a number of issues. For example, the test for the capacity of a franchisor to defend its action is dependent upon the capacity to show that it took reasonable steps. Some of the aspects that are given in the explanatory memorandum and the like as to what constitutes reasonable steps could, in my view, lead to forms of template compliance, the provision of manuals, information et cetera. That would detract from a capacity to ensure that organisations—franchisors, for example—take responsibility for instances of underpayment, including circumstances where superannuation is not paid. Many of those instances, for example in the 7-Eleven model, arise almost inherently from the business model. Those are all aspects which require some attention. The other thing I would note is that penalties are certainly increasing under that bill—

Senator HUME: Tenfold.

Mr Farouque : tenfold—but they are not equivalent to some penalties that attach in other regulatory regimes. I see no distinction why, for serious contraventions, there should not be some parallels.

Senator HUME: One of the things that you suggested was that—let me get this right—unions should have enforcement capabilities and that super funds should have enforcement capabilities. Is that correct?

Mr Farouque : Yes.

Senator HUME: With the unions—I am interested in this—my understanding is that only one in nine employees in the private sector at the moment belong to a union. What would happen with the other eight?

Mr Farouque : It does not necessarily follow that workers who are members of unions should have the capacity to ask their union to enforce entitlements such as superannuation.

Senator HUME: Obviously unions would need to increase their resourcing to be able to do that. How do you think would they pay for that enforcement?

Mr Farouque : One of the things that unions seek to do—

Senator HUME: That is probably a question better directed to Mr O'Brien.

Mr Farouque : Yes.

Mr O'Brien : One of the ridiculous elements is that I can quite easily go and pursue unpaid wages, but I get stopped at the door when it comes to unpaid super. I do not think it is a significant additional resources burden that unions would suffer to go and seek this. We are potentially already there around unpaid wages. I would not see it as a significant increase in the resources required to go and enforce this. It is really just about recognition. It is similar with the Fair Work Ombudsman. If the Fair Work Ombudsman are there dealing with unpaid wages, why should they not also be there dealing with superannuation? That potentially deals with your unionised workforce versus your non-union workforce. It is really about streamlining this so that those who are best charged with enforcing industrial rights are given the ability to do it.

Senator HUME: One of the other suggestions that you made, Mr Farouque, was that super funds have the power to enforce nonpayment of superannuation. Again, how do you think they should be compensated for that additional resourcing requirement?

Mr Farouque : From my perspective, one of the critical issues is that an individual is not left on their own account to enforce these obligations. That obligation should attach to organisations and bodies that have resource and capability to do that. In the superannuation environ, if you look at it, the funds have that capacity. They will be able to move at scale. They will be able to develop enforcement models, which will have a greater cost logic in terms of dealing with an issue at scale. They will be able to develop, I would have thought, models of calculation—they would already have them—to calculate what the superannuation entitlements are. That is important and, when you look at that environ, a super fund is much better placed to do that than an individual. That is my view.

Senator HUME: There are some super funds that are clearly doing this already. I know Cbus put in a submission, in conjunction with the ISA, that suggested that they had done just that. With an organisation like Cbus, you can see they have got that size and scale where they are capable of such an undertaking. We did have one witness—he was a small business owner—who suggested that a super fund that he had dealt with had sent a debt collector to his door in quite menacing circumstances, but mistakenly. The money had actually been paid into the superannuation fund, and yet this fellow was being menaced by a debt collector that had been sent by a superannuation fund.

The other issue that I think is particularly important here is that not all superannuation funds are the same. We have some really big ones that have that capability, but we also have those tiny rats and mice ones. And while there is a desire to see those funds amalgamate or consolidate for the sake of efficiencies, there does not seem to be all that much impetus from the funds themselves to do so. So how do you give super funds the right or the capacity to enforce this if these super funds are of different sizes and scales and abilities? How do we justify that position?

Mr Farouque : Superannuation funds, whether large or small, have to deal with complex regulatory requirements already. In my view, when one weighs up the extent of unpaid superannuation obligations, you have to make some choices here. If you look at the environ generally, a greater number of funds have a greater degree of capability to enforce those obligations. Because some funds may not be readily placed to do that at the moment, it is not necessarily a good reason why reform should not confer standing upon funds to enforce those obligations where requested to do so by a member. It is really a question of conferring funds with the standing to engage in that activity. Ultimately, if a fund is not going to take advantage of those paths or entitlements, that might be a matter for that fund and people might need to make choices about which fund offers them the best degree of service and reliability.

Senator HUME: That is the problem, isn't it? A lot of the situations we have at the moment do not necessarily—while ostensibly we have fund choice, there are a lot of agreements that do not necessarily involve fund choice; therefore, you could end up with one of these rats and mice funds representing your interests. Do you see what I mean?

Mr Farouque : I do not—

Senator HUME: I think I just spoke in too many negatives.

Mr Farouque : I suppose, yes.

Mr O'Brien : Isn't that an argument to actually start creating that requirement across the funds? One of the things we have done in superannuation is to try to lift the bar around these sorts of things. I think about it in the context that funds have an obligation to manage the assets of their members, and unpaid super could definitely fall within that boundary. In relation to the report you talked about, some of those funds do see it very much as an obligation to pursue unpaid super. To pick up on Mr Farouque's point, trying to create some industry type vehicles that can do that at scale is probably an area that we should be looking at. What our experience has been with unpaid wages that is different with super is that it is good to have lots of different ways to try to drive compliance in this area, whether it be unions, the Fair Work Ombudsman, the ATO or indeed super funds—giving them some powers to essentially enforce what a lot of funds will see as their obligation to manage it.

Senator HUME: Or the ATO as of now.

Mr O'Brien : There are elements around the ATO. Your made a point before about paying it as tax. We have clearinghouse functions that exist. Those are appropriate. We should look at ways in which we can really improve that. But, fundamentally, it comes down to this is essentially a deferred wages matter and a compliance issue with regard to that, and it is, by its nature, very different to potentially trying to drive a tax compliance.

Senator HUME: I am interested, just for my own knowledge: how big was the issue of unpaid super for Swimland? Obviously unpaid wages is one thing, but unpaid super—what sort of size or scale of—

Mr O'Brien : Let us take the round figures at the site that I mentioned before. When you have $200,000 in unpaid wages, by its nature there is a component in there of unpaid super. In the Swimland case, we have been quite successful at ensuring that not only have unpaid wages been met—I have to be careful; there is still a fair work matter that is before the commission—but also that unpaid super relating to that has also been corrected. Our concern, and this is based on our observations throughout the rest of the industry, is that there are similar types of arrangements that are happening out there. Based on some anecdotal evidence we have had, yes, there is superannuation noncompliance in the sector, and it is very complicated for workers. There is the point about how for people who are not in unions it is more difficult for them to seek to have those rights enforced.

Senator HUME: The cases that the two of you have been referring to, both Swimland and 7-Eleven, are quite substantial organisations and the underpayment of wages has been a systemic problem. Yet a lot of the conversation that we have been having about unpaid superannuation guarantee seems to focus far more on small business and the administrative problems that small businesses face. I have a real problem with people talking about these 'wicked small businesses that don't pay superannuation'. In the vast majority of cases small business people want to do right by their employees, but they are faced with an administrative burden, a complicated system and an opportunity to manage cash flows that probably should not be placed in front of them. What do you have to say about the administrative side of the non-payment of the superannuation guarantee—non-payment of wages, which is a different issue. I know they are inexorably intertwined, but for the sake of this particular inquiry we are talking about superannuation guarantee. Do you have any comments to make about the administrative requirements on small businesses that make it difficult for them to comply?

Mr Farouque : Administrative obligations are attached to a number of things, whether it be the band of work cover, superannuation, payment of wages and other minimum entitlements. It is something that ultimately needs to be complied with, and the mere fact that it creates some administrative obligations is not a sufficient excuse for noncompliance. That is my view.

Senator HUME: Do you think that the introduction of the clearinghouse, for instance, or the single-touch payroll are all steps in the right direction? My concern is that a lot of the data that we seem to be basing this discussion on is quite old. There has not been time to see those policies and those programs flow through into what is happening now. And the cases that you guys are referring to are really more about the larger companies, mid-sized companies, with non-payment of wages as opposed to simply non-payment of superannuation guarantee.

Mr Farouque : Perhaps I can just speak about the 7-Eleven example. There was a franchise situation, obviously. It involved elements of a large corporation, and the business model was a number of small employing entities, the franchisees, and obviously there was endemic underpayment and nonpayment of entitlements. I would not necessarily say that the 7-Eleven example is simply exclusively a story about a large corporation. It is also a story about a range of smaller organisations. There is also, across the economy, a pretty good indication that instances of wage fraud inherently involving superannuation occur in a number of sectors where the proportion of small businesses is larger—in retail and in fast food, for instance. So I would not want my comments to be confined to characterising it as an issue that attaches to large organisations. It is also something that affects sectors where small business is common.

Mr O'Brien : Nor would I. Whilst Swimland is a large corporation, it is also a franchise. Clearly, what we found with regard to administering the back pays is that cash flow was a key factor, and I think you raised that before. Why do we create this opportunity—I am not saying it is viciousness necessarily—where potentially an employer cannot meet its obligations with regard to super, whereas with regard to wages there is a greater level of compliance? I would say the characteristics that lead to wage fraud are the same characteristics that lead to unpaid super, and they are primarily around cash flow, which we do see largely in small businesses—we see it quite commonly in the agricultural sector—where cash flow is clearly a main trigger that drives some of these behaviours.

CHAIR: Just in the last couple of minutes, I want to ask about the Fair Entitlements Guarantee. Do you think there is a role for extending that to apply to superannuation? If so, in what circumstances?

Mr O'Brien : We have had some experience with a number of large insolvencies—businesses that have gone into administration. One thing that has always struck me is why superannuation is treated differently to any other entitlement in this space. We would see extending the Fair Entitlements Guarantee to superannuation as an essential. Regarding workers, as I said at the start, this is an industrial right; it is deferred wages.

CHAIR: My final question is to both of you. What would be your recommendation as to what would be the most significant change that should come about in relation to superannuation? If you were sitting on our side of the table, what would be a couple of the most important recommendations, firstly to prevent these underpayment situations from arising and secondly to mitigate them?

Mr O'Brien : As I said at the start, I think a key problem workers face in identifying unpaid super is the time that is taken from a payment being owed to it actually landing in their fund and the visibility that workers have over that. We would say the superannuation should be paid just like wages: at the same frequency and on a timely basis. The clearing-house functions that exist right now are more than adequate to ensure that that happens. The second part goes to what Mr Farouque said: it is the enforcement end and ensuring that the Fair Work Ombudsman is sufficiently resourced so that when they are in there dealing with unpaid wages, which is quite often the case when unpaid superannuation is also at hand, they are also dealing with the unpaid super component.

Mr Farouque : I would adopt what Mr O'Brien said on both of those issues I think more regular payment of superannuation than the current regime of quarterly payments is essential. It should link in with pay cycles. Secondly, I think it is important to beef up the enforcement and regulatory apparatus through the mechanisms I have suggested. I think that is essential. I think greater enforcement, particularly in relation to vulnerable workers, is important, and education in that domain to alert people to the opportunities or to whatever renewed regulatory framework emerges. People should be made aware of their rights and entitlements. I think that is also important.

CHAIR: Thank you very much, gentlemen, for appearing before us today.

Proceedings suspended from 10:45 to 11:00