The high-profile dispute between hospitality industry super fund Hostplus and onboarding platform Employment Hero is ensuring that the issue of employee onboarding platforms gets close scrutiny from the government.
“The government has made it clear that employee onboarding platforms should not undermine stapling,” Minister for Financial Services Stephen Jones told Investment Magazine in a statement.
“We are reviewing feedback from consultation on whether more needs to be done to ensure the intent of stapling is achieved.”
One of the focuses of the review will include whether onboarding platforms should be allowed to accept advertising revenue from super funds they promote to new staffers on their site.
Stapling was introduced with the Your Future Your Super (YFYS) legislation which came into force in 2021, with a goal of reducing the incidences of employees having superannuation accounts with multiple funds.
The impact of stapling was more marked after the end of a trial period, in November 2022. But as an analysis of the impact of stapling in a column in Investment Magazine noted in February there has been no material drop off in the number of accounts in Australia.
No structural impact
While this could be a result of many factors including the net 500,000 plus new migrants who came into Australia in the last financial year, indications are that the stapling legislation may be affecting some funds – such as the Qantas employee fund – but is yet to make a major structural difference on the total number of accounts.
The issue of employee onboarding platforms potentially undermining the impact of the stapling legislation was flagged in a review of the YFYS legislation, which was released a year ago.
“The review has also uncovered inappropriate behaviour where software providers are not only undermining stapling, but also directing employees towards products that are associated with the software provider,” Jones noted at the time of releasing the Treasury review.
“This behaviour should cease voluntarily,” he warned.
“If it does not cease, then the Government will explore changes to law or regulation to prevent it continuing.”
While Hostplus is an industry fund which in theory should be favoured by the stapling legislation, given the fact that many Australians have their first jobs in hospitality, it has made submissions raising its concerns about onboarding platforms to the government, and a public attack on the fund by Employment Hero chief executive Ben Thompson has fuelled a broader fire.
While Thompson has certainly helped draw attention to the success of his growing business, and provoked a new line of discussion on his LinkedIn page about the increasing power of industry super funds, his comments have raised pressure on the government to review the operation of onboarding platforms.
With the increasing pressure on employers in handling the complexity of onboarding new staff, it is not surprising that they are turning to smart new software platforms to handle these issues for them including helping employees make the selection of which super fund they want.
If these platforms are seen to promote or offer a range of super funds for the new staffer, do they undermine the impact of the stapling legislation, particularly if they receive advertising revenue from the funds in question?
Part of the issue for employers is the hassle of having to go to the ATO to identify a new staffer’s old super fund, as they are required to do under the stapling legislation, if the new staffer doesn’t make their own election of a fund when they are hired.
How much easier is it if the new staffer ticks a box for a preferred fund from a list that could also include the fund which has been associated with the company in the past?
Travis Dickinson, retirement director at WTW Australia described the situation in February when he talked about “the new employee onboarding processes that employers either had in place or introduced post stapling, which effectively force their new employees to make a choice with regards their preferred superannuation fund”.
“Forcing new employees to make a choice, with the employer’s default fund being one of the choice options, means that the employer never actually reaches the point where they need to identify a stapled fund for a new employee,” he said.
“We certainly know of some larger employers that utilise this type of onboarding approach.”
Stapling woes
In his analysis of the issues around stapling The Conexus Institute* executive director David Bell has pointed out that under current legislation there does not appear to be an obligation on an employer to explain to a new employee that they may already have an existing fund they can opt for.
This lack of obligation on the employer to search for the new employee’s existing fund and present them with this as an option “creates greater ‘space’ to pitch alternative funds”, Bell says.
“There is no obligation to ask a fund consolidation question if the employee chooses a different fund,” he says.
“This can lead to multiple accounts.”
Bell says it appears that “policymakers wanted to make stapling as easy as possible for employers”, but he questions if the government “failed to understand the role played by employment platforms”.
“Employment platforms are incentivised to not be proactive regarding (seeking out the new staffers old fund) as this maximises the opportunity for funds to pay for platform space,” he says.
“Instead of employers choosing a fund (potentially poorly) they have outsourced to employment platforms to profit from the opportunity (with no quality motive) by framing the choice as they see best fit.”
Approached by Professional Planner sister publication Investment Magazine in February for his view on the impact of stapling on Hostplus, chief executive David Elia was tight-lipped, saying it was still “early days”.
“It’s really difficult to offer an opinion on the full impact of stapling on the superannuation sector as it is not yet entirely clear and the evidence is not concrete to arrive at any firm conclusions,” he said.
But Hostplus’ submissions calling for a ban on advertising by super funds on employee onboarding sites have provoked Thompson’s ire, and he’s come out fighting.
Thompson argues that his platform is an effective digital channel for advertising super, and has challenged Hostplus to test its results by advertising on its platform.
Writing on LinkedIn, Thompson argues that its platform “provides an efficient market place that’s open to all qualifying funds, including Hostplus”.
He argues that Employment Hero is fighting “to preserve choice and competition in the superannuation sector”.
Hostplus says a ban on advertising by super funds on the employee onboard sites is needed to prevent an underperforming super fund from being promoted or “featured” on an Employment Hero site if they paid Employment Hero a fee.
Hostplus says other employee onboarding platforms such as Tanda are supporting the ban as is Super Consumers Australia which has warned that “super funds with the most money will pay to be featured on these onboarding platforms, not necessarily the ones that are best for you”.
Hostplus accuses Employment Hero of having a “pay to play” model, whereby superfunds can enter into private arrangements with the platform to receive favourable promotions.
Investment interest vs self-interest
The question for Minister Jones, who already has a lot on his plate including legislation on superannuation and financial advice waiting for passage this year, is whether he wants to ban super fund advertising on the platforms or whether this will be seen as a step too far.
Are there other steps that can be taken to tackle the issues including some of those raised by David Bell?
Adding to the many strands of the story is that Hostplus itself, which has been a strong supporter of venture capital investments and start-ups including Canva, has a small stake in Employment Hero itself through a venture capital fund.
When push has come to shove, Hostplus has made it clear its small investment in Employment Hero is not going to stop it from taking the fight up to the company which it feels is undermining its own interests.
Hostplus has written to venture capital fund Airtree, one of its investment funds, to question Thompson’s behaviour – a letter that Thompson himself made public.
This has led to accusations by Thompson that this is another sign of the big industry funds throwing their weight around.
Hostplus argues that “there is no superannuation fund that has done more for technological advancement in Australia than Hostplus”.
“Leading venture capitalists have acknowledged that, without Hostplus, there would never have been an institutionalised VC ecosystem in this country.”
But it argues that it has a “paramount responsibility to protect our members from any mechanism we believe seeks to undermine our members’ financial interests”.
“To that end, we will continue to engage with the board of Employment Hero regarding our corporate governance concerns raised not only by its business practices, but by the concerning behaviour of its CEO in opposition to responsible reforms aimed at benefiting our members.”
Hostplus said it will be “seeking to improve the culture of compliance at Employment Hero from within and will be calling on its board to explain how it intends to address the matters outlined above in the interests of all stakeholders”.
As the super funds industry continues to grow, the debate over stapling and Hostplus’ own feud with Employment Hero highlights the high stakes involved.
*David Bell is executive director at The Conexus Institute, a not-for-profit think-tank philanthropically funded by Conexus Financial, the publisher of Professional Planner.
