The Federal Government committed in May this year to require super to be paid by employers for employees at the same time as the wages for those employees are paid. Whilst Payday Super is currently intended to start on 1 July 2026, we are starting to see what the changes might be.
Treasury issued a fact sheet on 17 September outlining the current intentions of how the new law will operate, and also setting out a timeline of steps that will occur between now and the start date. At this stage the only consultation flagged is with industry to inform the administrative design of the new rules. Thus far it is unknown if any consultation is planned on the legislation itself.
The current rules about when super contributions must be paid by employers are largely unchanged since super guarantee came in on 1 July 1992, so it is worth setting out a broad outline of the expected key changes.
| Current rules | Proposed changes |
| Super must be made by the employer on or before the 28th day after end of each quarter.
Deductible when contribution is made, but only if made on time. |
Super must be received by employee’s fund by 7th day after ‘payday’.
This is calendar days, not business days, so extended business closures such as Easter and Christmas may delay and cause a breach. Each employer will be dependent upon their clearing house re whether this requirement is met. |
| New employees who start during a pay period are under the same timetable. | There will be exceptions for new employees: Ordinary time earnings (OTE) paid in first two weeks of employment has its due date deferred. It is currently unclear if the employer must pay on day 14, if day 14 is deemed a payday so the seven days start then or if it is some other approach. |
| Changing pay (such as irregular overtime, or a one-off bonus). | Small and irregular payments rolled to next ‘payday’ for 7 day clock to start. |
| ATO currently runs the Small Business Superannuation Clearing House [for businesses with 19 or less employees and T/O < $10m]. | ATO will exit this space on or before 1 July 2026, so all small businesses using this service will need to find a new clearing house. |
| The SG shortfall is calculated on the ‘quarterly salary or wages base’ for each employee.
Any shortfall paid is not deductible. |
The SG shortfall will be calculated on OTE, which is what the super contribution is calculated on, so these will harmonise.
Any shortfall paid will be deductible. |
| Notional earnings is calculated from the start of the quarter in which the shortfall arises. The nominal interest component rate applied to compensate employees for lost earnings is always 10%. | Notional earnings will start being applied from the 7th day after payday, which is the due date for the super contribution to be received by the employee’s super fund. It will be calculated at GIC rates. |
| Administration cost is $20 per employee per quarter.
This is not a penalty, so is usually deductible under s.8-1. |
There will be a new administrative ‘uplift’ charge. It will be based on a formula (not yet available), which will be based on the SG shortfall amount.
It is intended to reflect the cost of enforcement and so is likely to be significantly higher. There is a cap at 60% of SG shortfall amount. Deductibility status is currently unknown. |
| The administration cost is $20 regardless of how long ago the SG shortfall occurred. | GIC will be applied to the administrative uplift penalty from the date of assessment until the payment date.
We anticipate this will not be deductible, as it is GIC, which will not be deductible from 1 July 2025. |
| SG penalty regime currently caps out at 200%. | Penalty – if employer is assessed and does not pay assessment within 28 days then a penalty will be imposed of up to 50% of the outstanding unpaid SG charge amount (i.e. the total super shortfall + earnings + administrative uplift).
We anticipate this will not be deductible. |
| Late contributions – an employer can now choose to apply to a different quarter, which can reduce its overall SG exposure as may reduce/eliminate shortfall in that later quarter. | Late contributions automatically count towards earliest possible payday with an unassessed SG shortfall. This will increase employer cost; however, the super amount itself being deductible will mitigate this. |
There are a couple of changes above which are worthy of further comment.
Firstly, the ATO leaving the clearing house space is interesting. If a payment was made late and an employer tries to blame the clearing house for the delay then the ATO would have to rule on whether it was at fault, so perhaps this change is not surprising.
Secondly, the change of calculating lost earnings for employees is a significant change. The current rules start the 10% notional earnings calculation from the start of the quarter in which a shortfall arises. Under the proposed new system, interest accrues like GIC – from the due date onwards only. If these notional earnings are classified as interest then clarity will need to be given as to whether the incoming rules preventing a deduction for GIC will apply. As it is an amount ultimately payable to the employee and not the ATO, then a deduction may well be available, but we won’t know until the draft law is released. As with the current rules, interest will accrue daily until the shortfall is paid.
It is intended that the choice of fund rules will not change as part of the move to payday super.
There is one further change proposed. Currently a super fund has 20 days to allocate contributions it receives to members. The intention is to reduce this to three business days from receipt. Arguably this is about ensuring that members receive the benefits of super earlier. However, it may result in reserving strategies becoming much more difficult to implement.
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