We use a 6-step top-down method to estimate the super guarantee gap.
Step 1: Apply ABS data on salary and wages
We apply estimates of salary and wages by industry published by the ABS as part of their Gross Domestic Product (GDP) data.
Step 2: Apply an uplift factor to allow for hidden wages
We then apply an uplift factor to salary and wages to account for hidden wages as part of the shadow economy. This covers situations where the amount of wages reported to the ATO by employers and employers does not align, wages are paid in cash and/or employees are misclassified as contractors to avoid super guarantee or other obligations.
We based this uplift on internal analysis but also compared with international uplifts.
We also undertook analysis to ensure there is no double-counting of activities that 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
We remove the proportion of earnings not subject to the super guarantee, such as:
- when monthly earnings are less than $450. For income years prior to 2022–23, employers were not required to pay super guarantee when their employees earned less than $450 a month.
- salary sacrifice amounts
- amounts above maximum super guarantee contribution base
- amounts associated with employees outside the super guarantee eligible age range.
We exclude 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. There are also data limitations for this group, especially for unfunded defined benefit schemes where employers do not actually make contributions.
Step 4: Adjust for the impact of overtime
We adjust the estimate of theoretical super guarantee amounts to remove the impact of overtime, which are not subject to super guarantee obligations.
We do this 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. Then we aggregate across all industries.
This step increases the reliability because it recognises the diversity across industries in the amount of overtime available.
Step 5: Estimate theoretical super guarantee liability
We multiply the result from step 4 by the statutory rate to estimate the theoretical super guarantee payable.
Step 6: Estimate the gross and net gaps
We examine annual data from super funds. We take reported super guarantee amounts (including defined benefits schemes) and remove certain reportable amounts (including salary sacrifice amounts) which are not considered part of mandatory employer obligations, together with discounts and adjustments.
This amount is deducted 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 contribution amount represents the gross gap. This represents the estimated gap if we did not undertake compliance activities. We then factor in the results of our direct interventions (such as audit activity) to arrive at the net gap.
Summary of the estimation process
Table 3 shows the estimate amounts for the 6 steps of the super guarantee gap from 2015–16 to 2020–21.
|
Step |
Description |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
|---|---|---|---|---|---|---|---|
|
1 |
CoE salary and wage data ($m) |
725,508 |
743,608 |
780,758 |
822,053 |
853,918 |
887,096 |
|
2 |
Hidden wages uplift (2.3%) ($m) |
16,600 |
17,053 |
17,972 |
18,906 |
19,534 |
20,236 |
|
3 |
Less earnings not subject to super guarantee ($m) |
153,384 |
157,180 |
160,218 |
167,720 |
161,659 |
172,708 |
|
4 |
Multiply by AWOTE to AWE ratios at the industry level to obtain salary and wages subject to super guarantee ($m) |
567,056 |
580,487 |
613,889 |
648,777 |
688,293 |
711,051 |
|
5.1 |
Multiply by statutory rate (%) |
9.50 |
9.50 |
9.50 |
9.50 |
9.50 |
9.50 |
|
5.2 |
Amount that should be paid ($m) |
53,870 |
55,146 |
58,319 |
61,634 |
65,388 |
67,550 |
|
5.3 |
Add back defined benefits ($m) |
4,351 |
4,141 |
4,054 |
4,086 |
3,842 |
3,701 |
|
5.4 |
Theoretical liability ($m) |
58,221 |
59,287 |
62,373 |
65,720 |
69,230 |
71,251 |
|
6.1 |
Reported super guarantee (including defined benefits) ($m) |
54,349 |
55,777 |
58,416 |
61,420 |
64,912 |
66,830 |
|
6.2 |
Gross gap estimate ($m) |
3,872 |
3,509 |
3,957 |
4,300 |
4,318 |
4,421 |
|
6.3 |
Compliance outcome ($m) |
579 |
744 |
861 |
855 |
709 |
802 |
|
6.4 |
Net gap estimate ($m) |
3,293 |
2,766 |
3,096 |
3,445 |
3,609 |
3,619 |
|
6.5 |
Gross gap (%) |
6.7% |
5.9% |
6.3% |
6.5% |
6.2% |
6.2% |
|
6.6 |
Net gap (%) |
5.7% |
4.7% |
5.0% |
5.2% |
5.2% |
5.1% |
Find out more about our overall research methodology, data sources and analysis for creating our tax gap estimates.
Limitations
There are limitations associated with estimating the super guarantee gap.
Australian National Accounts data
ABS Australian National Accounts data (National Accounts) is compiled from surveys and benchmarking activities. It has the following limitations:
- Outcomes are subject to sampling and non-sampling errors.
- Because it does not include estimates for impacts of the shadow economy on wages data, an uplift factor is required for the estimated gap.
- It is subject to revisions which result in changes to the estimated gaps as we refresh it in future years.
Limited availability of ordinary time earnings data
The ABS wages data we use includes payments related to overtime that are not actually subject to superannuation guarantee obligations. We estimate how much overtime to exclude by applying a discounting factor based on the ratio of AWOTE to AWE.
Hidden wages in the shadow economy
The Shadow Economy Taskforce final report highlighted that the previously applied uplift for hidden wages understated the extent of undisclosed wages.
As a result, last year we increased the hidden wage uplift from 1.2% previously applied to 2.3%. This aligns with the outcome from a comprehensive internal analysis undertaken. This year we have applied industry-specific hidden wage uplifts improving the linkages to other industry-specific parts of our gap estimates.
Salary sacrifice data is only included 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.
Also, the salary sacrifice amount may represent the full amount of required super guarantee contributions depending on which salary base the employer had calculated the obligation.
This factor could lead to an understatement or overstatement of the gap. However, we believe the impact is relatively low.
Restrictions in the application of the estimates
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 extended definition if they are not excluded employees, such as independent contractors.
Work out the difference between an employee and a contractor.
Gap estimates reflect trends in the overall system
Super guarantee gap estimates cannot accurately predict the number of employees and employers affected.
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 incorporating updated estimates of wages published by the ABS.
We also make changes for reasons such as:
- 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 2020–21
The data is presented in Table 4 below.
|
Gap |
2009-10 |
2010–11 |
2011–12 |
2012–13 |
2013–14 |
2014–15 |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020-21 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2023 program |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
5.7% |
4.7% |
5.0% |
5.2% |
5.2% |
5.1% |
|
2022 program |
n/a |
n/a |
n/a |
n/a |
n/a |
6.0% |
5.7% |
4.7% |
5.0% |
5.1% |
4.9% |
n/a |
|
2021 program |
n/a |
n/a |
n/a |
n/a |
5.5% |
5.1% |
4.7% |
3.6% |
4.0% |
3.8% |
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 |
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 |
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 |
n/a |
n/a |
|
2017 program |
3.8% |
4.6% |
5.9% |
4.8% |
4.7% |
5.2% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |