Michaelia Cash says there is evidence employers are shifting costs on to the taxpayer-funded fair entitlement guarantee

This article is more than 2 years old

This article is more than 2 years old

Company directors and managers who leave their companies unable to pay workers’ wages or repeatedly access the taxpayer-funded safety net would be targeted under a federal government crackdown on misuse of the scheme.

On Thursday the employment minister, Michaelia Cash, and revenue minister Kelly O’Dwyer announced new penalties for misuse of the fair entitlement guarantee (Feg) due to growing evidence many employers are shifting their costs to the scheme rather than paying their own wage bills.

The employment department estimates that one in seven claims on the Feg involves companies that engaged in practices to deliberately avoid paying employees’ entitlements when they become insolvent.

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A consultation paper issued in May revealed that an examination of all claims on the Feg and its predecessor since July 2007 had concluded “there are more than 1,300 company directors who were directors of two or more companies” who accessed the scheme.

“The majority of these 1,300 directors serially managed companies which failed.”

In September the employment department refused a freedom of information request from Guardian Australia seeking a list of directors who had repeatedly accessed the Feg, claiming that to release the information would prejudice current investigations that are not public knowledge.



The information “forms the basis of departmental referrals to the Australian Securities and Investment Commission as justification for proposed action against certain directors to be disqualified from being company directors”, it said.

The proposed changes would create a new civil penalty for directors or managers who make a transaction that a reasonable person would have known would evade employee entitlements.

The standard for criminal offences will be lowered so that company officials who recklessly make a transaction that has the effect of avoiding employee entitlements are punished.

The current civil penalty is the amount of employee entitlements avoided and the criminal penalty is 10 years’ jail, $210,000 or both, but the existing penalties have never been successfully applied.

Directors and officers who have repeatedly become insolvent, relied on the Feg and otherwise breached the Corporations Act could be disqualified under the changes.

Since 2007 the average annual cost of the Feg has quadrupled from $63m to $247m. In 2016-17, the scheme paid the unpaid entitlements of 12,354 workers, at a gross cost of $183m of which only $37m was recovered from insolvent companies.

The discussion paper identified “sharp” corporate practices to avoid entitlements including:

Employees being hired by a company with insufficient assets to pay redundancies or transferring assets away before redundancies;

Illegal “phoenix” activity where one company goes insolvent but the business and assets are transferred to another company to continue with the same directors or officers;



Unfairly managing an insolvency to the detriment of creditors, for example, through use of a “friendly” liquidator;

Company receivers or liquidators failing to pay employee entitlements in breach of legal obligations.

In a joint statement Cash and O’Dwyer said: “The government is taking action to ensure employers are held responsible for paying their workers and that taxpayers are protected from corporate abuse of the Feg scheme.”

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“These changes will be targeted to deter and punish only those who have inappropriately relied on [the] Feg.

“They will not affect the overwhelming majority of companies who are doing the right thing.”

Labor’s employment spokesman, Brendan O’Connor, said his party “will always support proposals that hold rogue companies and directors to account and ensure workers receive their entitlements”.

“However, given that the [employment] minister voted to support her government’s legislation to abolish the Feg scheme only a few years ago, which was stopped by Labor and the crossbench, the detail of any changes to the scheme proposed by the government will need to be carefully scrutinised.”