What is Payday Super?

As announced in the 2023/2024 Federal Budget, the Payday Super regime aims to increase the retirement incomes and savings of over 8.9 million Australians by ensuring more frequent payment of superannuation and increased visibility to reduce non-payment.

The proposed commencement date for Payday Super is 1 July 2026. Under the regime, Superannuation Guarantee (‘SG’) contributions will be required to be paid on ‘payday’, which aligns to the date the employer pays Ordinary Time Earnings (‘OTE’). Consequently, SG contributions will no longer be held to a quarterly cycle, increasing the frequency of superannuation payment obligations and compliance for employers.

The policy intent behind the Payday Super regime is increased transparency to hold employers more readily accountable for non-compliance and addresses the issues of delayed or unpaid SG to employees. The aim is to alleviate the unfair impact non-compliance has on the future financial position of impacted employees.

On 18 September 2024, the Treasury released a fact sheet to provide employers with some further guidance and insights on what changes are expected to affect the Superannuation scheme.

Payday Super – what do we know so far?

From 1 July 2026, employers will be held to a new 7 day ‘due date’ for contributions to arrive in the employees’ superannuation fund. This deadline seeks to provide sufficient time for the processing of funds through the payment system and into the complying superannuation funds.

Where the SG contributions are not received in the employee’s superannuation fund within 7 calendar days of payday, there will be increased SG charges for the employer. There are, however some circumstances which are exempted from this 7-day deadline:

• New employees – Where payday falls within the first two weeks of new employment. In this case, the 7-day due date is deferred to after this two-week period.
• Small and irregular payments – Where SG contributions are paid for irregular payments outside the employee’s ordinary pay cycle. In this case, the payment will not constitute a payday and will be considered on the next regular payday.

Increased SG Charges and penalties for employers

As part of this new regime, employers will be liable for the increased SG charge where they fail to pay SG contributions on time. This new SG charge is introduced as an attempt to fairly compensate employees for any delays they encounter in receiving their super entitlements.

Assessments with respect to the application of the updated SG charge will be made by the ATO. These assessments will be triggered where non-payment is detected by the ATO, via either of the following circumstances:

• Employer lodgement of a voluntary disclosure;
• Employee submits a notification to the ATO who subsequently determines non-compliance; or
• ATO’s proactive compliance approach through increased data matching.

What are the elements of the updated SG charge?

It is important to note that the updated SG charge framework is being designed to significantly penalise employers who repeatedly make late payments or do not pay superannuation at all. Consequently, recurring offences of making late payments under this new SG policy can result in substantial costs to businesses.

At this stage, the following elements of the updated SG charge have been announced:

• Outstanding SG shortfall amount – this will be calculated based on the employee’s OTE instead of the current methodology which requires a calculation based on the employee’s salary and wages.
• Notional Earnings – The SG shortfall will incur daily interest and will be calculated at the general interest charge (‘GIC’) rate on a compounding basis. Interest will begin accruing from the day after the due date passes. The current annual GIC rate for the September 2024 quarter is 11.36%. This replaces the existing nominal interest of 10% per annum.
• Administrative Uplift – this will be calculated as an uplift of the SG shortfall component (being up to 60%). This uplift component may be reduced where employers have taken voluntary action to disclose the late payment to the ATO and have committed to addressing the unpaid SG as quickly as possible. Depending on the shortfall amounts, this may be significantly higher than the current $20 quarterly fee per employee.

In addition to the above, where an assessed SG charge remains unpaid, there will be additional interest and penalties which apply. These additional penalties are as follows:

• GIC – this will continue to accrue on any outstanding SG shortfall and notional earnings, calculated at the GIC rate on a daily compounding basis. The GIC charge will also apply to any outstanding administrative uplift penalty which remains unpaid at the time of assessment.
• SG charge payment penalty

Based on the current Factsheet, the SG charge will now be tax-deductible to the employer, however any interest and penalties after assessment of SGC will not be tax deductible.

A more simplified approach to late payments

Helpfully, as set out in the ATO’s fact sheet, there will be a simpler approach to correcting late contributions. Employers will no longer be required to make an election to choose the relevant period for which the late contribution should count. Under the new approach, the contributions will now automatically apply towards the earliest period that is yet to be assessed for SG charge and still has an outstanding shortfall. However, theoretically, this may in turn cause one shortfall to cascade across all following periods until rectification.

Supporting measures

To facilitate the transition to Payday Super, there will be several accompanying measures implemented, as follows:

• 3 days to allocate/return contributions – significant reduction on the deadline for superannuation funds to allocate or return contributions (currently 20 days).
• Revised SuperStream data and payment standards – to allow payments via the New Payments Platform and improve error messaging between employers and intermediaries.
• Revised choice of fund rules – to make it easier for employees to nominate their superannuation fund.
• Advertising restrictions – this will apply to superannuation products and will be limited to MySuper products that have passed the recent performance tests.
• The ATO Small Business Superannuation Clearing House will be retired from 1 July 2026.

Increased ATO compliance

With the introduction of Payday Super, the ATO will have increased visibility of SG contributions, predominantly through matching Single Touch Payroll (‘STP’) data and superannuation fund reporting. Whilst this will allow the ATO to have a more proactive approach to identifying missing or late payments, the onus remains with the employer to make sure the SG payments are made on time.

To further facilitate SG compliance, employers will be required to report both the OTE and SG liability for the employee via STP. This will allow employees to check their superannuation account more frequently to determine if their employer is meeting SG obligations.

Information Gaps – watch this space

Whilst the Treasury’s fact sheet gives us some insight into what we can expect, there are some unanswered questions which will require clarification, prior to 1 July 2026. Here are some of the questions that need to be resolved before the legislation is finalised.

• Is 1 July 2026 a firm effective date for all business, regardless of employer size? Or will there be staggered start dates, subject to ATO approved deferred start dates?
• How will OTE be calculated for high-income earners on a per-payday basis if the Maximum Contribution Base (MCB) cap remains quarterly?
• What is the definition of “Notional Earnings” for calculating the SG charge?
• How will Payday Super impact contractors who are not paid from payroll but for whom employers make superannuation contributions (i.e. those contractors who meet the extended definition of employee for SG purposes)?
• Will there be any further penalties in addition to SG charge payment penalty, such as the Part 7 penalty under Superannuation Guarantee (Administration) Act 1992 (‘SGAA 1992’) or will the Part 7 penalty be retired as a result of Payday Super implementation?
• For the exception of the 7-day rule with respect to small and irregular payments, will there be a threshold for what constitutes a “small” payment for purpose of Payday Super? Or does this exemption capture any out of cycle payment, irrespective of the payment size?
• How will this new regime be managed for expatriates on shadow payroll in Australia?
• What will be the due date for SGC statements if a payment is made late (currently 28 days following quarter end)?
• Will there be a cap on the number of missed or late SG payments that an employer can make in a financial year before being considered for further penalties?
• Will the ATO consider publishing a list of superannuation providers that have confirmed they will be able to meet the reduced processing & allocation payment timelines?

Treasury have confirmed that legislative design is continuing to progress and that the ATO will undertake industry engagement to help inform administrative design. We are expecting to see an Exposure Draft before the end of January 2025 with subsequent consultation periods.

With Payday Super being one of the Australian Government’s biggest changes since the introduction of the SGAA in 1992, it is important that employers understand the implications for their business and most importantly for their employees.

If you have any further questions on Payday Super and would like to discuss how this might impact you and the appropriate next steps, please reach out to a member of the A&M Employment Taxes team.