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As ATO steps up vigilance and prepares for payday super, employers need smarter payroll governance
Key highlights
In this third article on Connected Tax Compliance, we explain why (and how) employers should review, prioritise and modernise their payroll governance.
The Australian Tax Office (ATO) has upgraded its data capabilities to monitor Superannuation Guarantee (SG) compliance - reinforced by the roll out of Single Touch Payroll Phase 2 (STP2).
The ATO has greater visibility of SG compliance and intends to act against non-compliance in real time, as per its FY24 Corporate Plan.
The proposed introduction of payday super, from July 2026, provides added impetus to ensure payroll governance alignment with regulator expectations.
Forthcoming SG changes, and a revamped regulator focus, are prompting employers across Australia to urgently re-visit their payroll governance frameworks – and modernise them.
Although the introduction of payday super is slated for July 2026, the ATO’s focus is already set on real time SG compliance. This was recently reaffirmed in the ATO’s FY24 Corporate Plan, which listed SG Integrity as being one of eight key focus areas for the regulator, based on increased use of data analytics.
Importantly, the introduction of STP2 provides a data platform which allows the ATO to identify, and act upon, SG non-compliance in real time. Employers therefore face a clear choice: review (and in most cases, upgrade) their payroll governance frameworks (including data testing and validation to augment system controls) – or potentially expose themselves to the risk of ATO compliance activities and associated penalties.
The good news is that there are best practice steps employers can take now to examine their governance frameworks, underpinned by automated payroll data reviews to identify potential risks and pinpoint potential SG non-compliance areas within the payroll system.
Government investment into data analysis. Payday super is coming.
To ensure employees gain the full benefit of superannuation contributions, the government and the ATO are seeking to enhance how the SG system works. A 2022 Auditor-General review identified areas for improvement with respect to the ATO’s administration of the SG system, in particular recommending that the ATO enhances its proactivity in reconciling the data it receives from employers and superannuation funds to identify, and act upon, non-compliance.
This report, along with recommendations from a Senate report into underpayments, led to the announcement of reforms during the 2023 Budget – namely:
The introduction of payday super
$27m funding to the ATO to invest in data-led superannuation non-compliance proactivity
ATO public reporting against accountability targets.
The investment in data-led compliance and accountability reporting have now been officially ratified through the ATO’s FY24 Corporate Plan, focused on an expansion in the “use of data to improve SG compliance” with a key deliverable being reporting against “new measurements of SG charge raised, collected and distributed in the annual report compliance”.
Payday super will provide employees with more timely contributions into their superannuation funds (where currently, the obligation is quarterly, requiring contributions to be received by 28 days post the end of a quarter). Employees will receive their superannuation into their accounts at the same time as their salary/wage is paid, likely providing better investment and retirement outcomes.
However, payday super doesn’t just benefit employees. Closer alignment between super remittances and salary payments will give the ATO better visibility of SG entitlements, allowing them to identify (and pursue) non-compliance. This supplements the current investment in data-led compliance initiatives, based on the direct correlation in real-time of superannuation entitlements versus payments.
The multiplier effect: Data analytics investment x Single Touch Payroll Phase 2 x payday super
Government and ATO investment in data analytics, and the impending introduction of payday super, are some of the steps being taken towards data-centred payroll compliance. Another is the rollout of Single Touch Payroll Phase 2 (STP2).
STP2 builds on STP1 and introduces more granular income reporting obligations (called disaggregation of the ‘gross’), where pay items that were previously grouped are now separated into distinct reporting labels, each with their own specific super profile.
STP2 has already prompted employers to increase their care and attention to payroll system governance. That is prudent, given that STP2 reporting provides the ATO with a more in-depth and timely understanding of an employer’s payroll system. (For example, where the payroll system does not apply super to a payment type, but reports this to a superannuable STP2 reporting label, this mismatch highlights potential non-compliance risk.)
The ATO’s understanding of employer SG compliance will only deepen when payday super joins forces with STP2. Together, these changes will enable the ATO to data-match an employer’s superannuation information closer to real time, potentially leading to more frequent and rigorous audits and reviews.
Time for employers to get on the front foot
Faced with mounting scrutiny and growing compliance requirements, employers need to review and tighten their superannuation governance frameworks to ensure effective controls are in place.
The investment in data analytics, coupled with the SG integrity ‘key focus area’ nomination in the FY24 Corporate Plan (and associated targets, such as raising $1b in SG charges), highlights that SG compliance is already an ATO priority via channels such as STP2 reporting. We’ve already observed the significant increase in ATO investigative activity, framed around data analytics from STP reporting.
Payday super’s proposed launch date of 1 July 2026 will only turbocharge this initiative; however, it’s clear that the ATO has already commenced its program focused on addressing SG non-compliance. Accordingly, employers need to embark on a proactive and considered governance review that effectively addresses any potential issues with their payroll system. Those who do not could unwittingly leave themselves exposed to ATO activity targeting non-compliance.
We stand ready to help
At PwC Australia, we’ve developed best practice methodologies, underpinned by a data-led approach to SG governance, utilising in-house technical expertise and fit-for-purpose SG automation tools that can analyse an employer’s STP2, payroll and SuperStream data to identify risks and possible exceptions.
Informed by the ATO’s expectations and data-led focus, our recommended approach broadly includes:
a. Critically review governance in place – in particular (but not limited to) the process for data-reconciliations between employee superannuation calculations and tax withholding calculated/disclosed in payroll, remittances (e.g. SuperStream) and STP .
b. Examine (or re-examine) the organisation’s structures and processes to ensure compliance with recent payroll-related developments, particularly STP2. Three immediate focuses should be:
i. Payroll system configurations: Review all ‘active’ wage codes in your payroll system to test alignment with SG and pay-as-you-go withholding law
ii. STP2 category mapping: Review of active wage code classification to the STP2 labels, to assess whether they are categorised correctly
iii. Data-testing: Sample/quarterly review of payroll system outputs for superannuation, to test against STP2 alignment and superannuation remittances (to identify data exceptions).
To learn more about PwC’s Connected Tax Compliance services, and how our data-led approach can provide a comprehensive review of your SG governance, please contact one of our advisors.
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Adrian James
Shane Pinto
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