Corporate misuse of employee entitlements scheme in the spotlight

Dramatically increasing costs surrounding the Fair Entitlements Guarantee (FEG) scheme were the trigger for a federal government review currently under way.

The review follows a surge in costs that led to taxpayers funding more than $1 billion in unpaid employee entitlements over four years and an increase in the number of employers abusing the program.

Previously known as the General Employee Entitlements and Redundancy Scheme, the FEG scheme provides a safety net for employees whose employers have become insolvent and where the employees’ entitlements cannot be recovered through other means. The scheme provides financial assistance for particular employee entitlements, such as unpaid wages, redundancy payments and accrued leave, to eligible employees who have lost their jobs as a result of their employer becoming insolvent. The amount paid out in assistance has increased from $60.8 million in 2007-08 to $284.1 million in 2015-16.

The government says the costs have “dramatically increased” to more than $1 billion over the past four financial years, a 75 per cent rise over the preceding four years.

It also says while 7,808 workers across 983 entities were paid FEG assistance in 2007-08, this rose to 14,341 across 1,746 insolvent entities in 2015-16. The rising costs have been attributed to “sharp corporate practices” such as directors seeking to prevent, avoid or reduce their company’s obligations to pay workers or creditors.

To address the increasing costs, Treasury released a consultation paper highlighting options for legislative change to address the corporate misuse of the scheme. Submissions will close on Friday June 16, 2017.

WA Insolvency Solutions