An employee's salary sacrifice is a boss's gain?
Employees, particularly those nearing retirement, often look to salary sacrifice part of their wages to superannuation to enjoy some taxation concessions, as well as putting additional money away for their pending retirement. But, what happens if the employer fails to remit the sacrificed component of the employee's wages to the superannuation fund and the employer subsequently becomes insolvent?
Usually in a company insolvency this kind of debt is treated as follows:
- The employee could claim as a priority creditor for outstanding wages against the company (as opposed to the debt forming part of the compulsory superannuation guarantee amount).
- The employee may be able to claim against the government’s Fair Entitlements Guarantee scheme for the amounts not remitted.
In a recent Worrells Western Victoria matter, the company director found himself facing a criminal prosecution taken by Victoria Police for failing to remit the salary sacrificed component of an employee's wage.
In that matter the employer (company) had withheld amounts over several years from the employee's wages, but failed to remit those amounts to the nominated superannuation fund. The employee sought to pursue the director for theft under criminal law. Victoria Police investigated the matter and determined grounds were available to proceed with charges and prosecuted the director personally.
I was surprised at this outcome given that the director was not the actual employer and it appeared that this prosecution would pierce the corporate veil. The matter was ultimately resolved when the director pled guilty (receiving a criminal conviction in the process) and paid the employee personally for the unremitted amount. In my view this seems a harsh penalty for what ultimately amounted to approximately $5,000 in unremitted deductions.
While I sought further details from Victoria Police on the basis for bringing the charges against the director personally, I have been unsuccessful to date in obtaining such information. Nevertheless, the outcome was not a great one for the director and serves as yet another warning of director’s obligations and risks, regardless of the so called protection provided by the corporate veil.