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Super Choice - Spoilt for Choice

The new superannuation choice legislation will require a juggling act for some employers

Employers operating nationally or across several states and territories may have to establish up to three different sets of arrangements for their employees, with the introduction of super choice laws on July 1.

An indication of how employers will need to be prepared for choice was a survey by Mercer Human Resources Consulting which found that at least 10 per cent of employees are considering switching funds in the next two years, if allowed.

But not every employee has the same rights to choose their own fund and that means employers must audit their workforces before deciding how best to proceed.

Here, for example, is a not uncommon scenario.

You are an employer with a large national workforce. Your factory employees are covered by a federal enterprise agreement, certified by the Australian Industrial Relations Commission (Certified Agreement), which specifies that super contributions will be paid into a company fund. Your maintenance employees are covered by a federal award which also specifies that contributions will be paid into a company fund.

But your clerical staff are not covered by the certified agreement or federal award but by a state clerical award which applies as a common rule. Your managers and senior executives are non-award employees. Your clerical staff, managers and senior executives have contracts of employment specifying that—like the employees covered by the certified agreement—they must make their contributions into the company fund

In this situation, before July 1, it’s fairly simple for the employer because it will be making contributions in respect of all employees into the company fund. However, from July 1, regardless of what the certified agreement, federal award or contracts of employment say, the employer will have to offer choice to at least one category of employee, if not more.

The starting point is the certified agreement employees. They will not have to be offered choice—unless the agreement does include anything about superannuation. In those circumstances, only if the employer identified the company fund as the “default fund”, and an employee did not choose their own fund, would the employer be allowed to continue making the employee’s contributions to the company fund.

The clerical and managerial staff are a different matter. Even though, under their contracts of employment, they have agreed that the company will make contributions into the company fund, the agreement will not be binding in respect of managerial staff. The employer must respect any manager’s wish to put their super contributions into a DIY or self-managed fund, master trust or any other fund the managerial employee chooses.

The contract of employment may also not be binding in respect of the clerical staff. If the state award which applies to these employees imposes an obligation on the employer to make a payment to a particular fund or refers to a level of contribution, choice will not have to be offered to the clerical employees.

Employees covered only by a federal award are in a different situation again. Although choice will have to be provided, until the employee chooses a different fund, the employer must comply with the federal award. Failure to comply would result in the employer breaching the award and becoming liable for penalties under the Workplace Relations Act 1996. This means that the company fund needs to be the identified as the “default fund” for these employees unless it is non-complying.

Choice therefore creates fertile ground for various groups of employees to be treated differently, and it means employment contracts and federal awards will be effectively trumped by the new choice of funds laws where choice is made. An audit of each class of employee’s entitlement is essential.

From an HR perspective, treating employees differently may create its own problems. Employers need to think about a whole range of communication issues. How they will respond to an employee’s claim that unless everyone in the organisation has freedom to choose, the system is unfair? Conversely, how does an employer respond to an employee who does have choice and wants to exercise it?

What constitutes advice? Can an employer report to employees about how well the company fund is performing? How can an employer guard against accusations that it engaged in misleading conduct or making false representations?

More fundamentally, how should an employer respond to any question from an employee about whether or not they are entitled to freedom of choice?

Another of the problems stemming from differing entitlements to choice is that payroll people must understand who has choice and who doesn’t. In the example above, these people will also have to be “tooled up” to explain to employees covered by the certified agreement that the law does not give them the choices available to other co-workers. They must also have an adequate response ready for the employee who argues that it’s not fair that they can’t have funds deposited into a self-managed or some other super fund, but their manager can. This whole area has the potential to confront the employer with myriad equity and consistency issues.

The new system is likely to increase employers’ administration burdens. Once an employer has conducted its audit to determine who is covered by which awards and agreements, and who is entitled or not entitled to choice of fund under the legislation, it may decide that to avoid further paperwork and the unpleasantness associated with differential treatment, it will somehow limit the number of employees given choice of fund. The question that then arises is can an employer opt-out of choice?

If the employer in the above scenario wants to maintain the employer fund stipulated in the certified agreement, for example, it may not want its managers and clerical employees to have super choice. To achieve this, it will have to enter into an industrial instrument with those employees. This could be done, for example, by using an Australian Workplace Agreement (AWA). However, such agreements are uncommon in the managerial sector and, in relation to the clerical employees, might give rise to broader industrial relations issues, particularly if the employees are unionised.

An employer contemplating this course will need to look at the broader industrial environment. Will its employees, or their union, agree to the AWA?

Alternatively, an employer might opt for a collective federal or state industrial agreement such as a NSW enterprise agreement. This involves various administrative processes relating to documentation, voting and registering with the appropriate commission or commissions. If the workplace’s clerical and managerial staff have never been involved in a collective agreement, this could be a very big step. And what happens if the employees say they want to be able to choose their own super fund?

If the workplace has a history of union militancy, will it be possible to successfully negotiate a non-union agreement? And would trying to do so raise other unrelated industrial issues?

An alternative to restricting or opting-out of choice is to provide choice to all employees equally. Many HR managers are seeing the issue of choice as an opportunity to position superannuation more favourably in their own remuneration and benefits strategy, especially where their workplaces have not had choice before. In such environments, super is being “sold” to employees as a valuable benefit which each employee can control. As such, super may become a helpful tool that helps employers hang on to staff and recruit people.

Where choice is limited because of a state award, the employer could move to a federal agreement or AWA to facilitate choice.
Where the employee is under a federal agreement that identifies a fund, an employer can still offer choice. Choice of fund legislation permits employers to pay into the employee’s chosen fund even if it differs from the fund in the federal agreement.

Regardless of what approach an employer decides to take, it is clear that well before July 29—the date by which employers must have provided employees with the standard choice form—they will need to have carefully considered how choice (or non-choice) will best align itself with their industrial, employee relations and remuneration strategies.