Leveraging Payday Super to elevate the role of tax in driving strategic transformation

On 2 May 2023, the Australia Government announced that, from 1 July 2026, employers will be required to pay their employee’s superannuation at the same time as their salary and wages, rather than on a quarterly basis. Whilst the changes are not yet legislated, based on information released to date by Treasury, it is proposed that the obligation to make contributions under Payday Super will move to seven calendar days after ‘payday’, based on the contribution being received in the employee’s superannuation fund.

Described by Australian Taxation Office (ATO) Deputy Commissioner, Emma Rosenzweig, as '...a once-in-a-generation opportunity to contemporise the Super Guarantee (SG) environment', Emma also noted that the measure ‘is aimed at ensuring more of the $5.1bn in unpaid SG each year is paid into members’ accounts’. With this purpose in mind, there are ancillary changes proposed with respect to allowing the stronger policing of compliance by the ATO, including enhanced Single Touch Payroll reporting.

These changes will necessitate investment by tax and payroll functions to transform both the operational and compliance environments, across technology systems, resourcing and processes. However, this major statutory reform also presents a strategic opportunity to elevate the role and impact that these functions have within the organisation - an opportunity to reframe.

Payday Super is straightforward in theory, but its implementation affects multiple interconnected components and stakeholders supporting a business’ superannuation ecosystem - employing entities, digital service providers (i.e. payroll systems), intermediaries (such as gateways and/or clearing houses), super funds and the ATO. Each of these need to make adjustments to support the rollout of Payday Super.

Coupled with this, multiple internal business stakeholders will play a role in implementing compliance for Payday Super, led primarily by the tax and payroll functions. However other functions, including HR, finance, treasury, and IT, will interact with the ‘superannuation lifecycle’ and the business’ 'solution' must provide synergy between each of these.

Some of the impacts that Payday Super may bring to an organisation (based on what has been proposed through Treasury) include:

• Increased cost of non-compliance: As part of the Payday Super changes, potential non-compliance events are more frequent (for example, shifting from quarterly to weekly/fortnight/monthly). There will be an updated SG Charge which caters for this, meaning the possibility of increased penalties and interest for non-compliance. Additionally, given this frequency overlay and the ATO/Government focus on compliance, there is the potential future impact on an organisation's overarching risk rating with the regulator.
• Increased administrative and compliance burden: Employers will no longer have until the end of the relevant quarter to ensure that a new employee is onboarded for SG payments (including ‘choice of fund’ requirements), or rectify data bounce backs that have seen funds returned. This, coupled with the increase in real-time reconciliation required to support Payday Super, is likely to result in additional administrative tasks and require stronger compliance governance, particularly during peak periods or reduced staffing times. Furthermore, where SG non-compliance has been flagged by employers, corrective action will be required to be taken immediately to reduce interest and penalties.
• Cashflow management: Increased payment frequency, and alignment of payment with salary and wages disbursement, may impact cashflow requiring better financial planning and timely internal payment processes.
• Clearing house interaction: Employers need to understand (and potentially renegotiate) terms with clearing houses to avoid delays in superannuation fund transfers.

With only 18 months remaining for employers to ready themselves for the implementation of Payday Super, preparatory actions should be commencing now. Whilst Payday Super brings a plethora of complexity, there is a larger opportunity to drive broader organisational strategic transformation and, with that, an opportunity for tax and payroll teams to bring their collective skills and knowledge to the table and elevate their contribution to an organisation.

Payday Super will require a critical assessment (and potential upgrade) of technology, significant amendments to process (onboarding, payroll processing, approvals, remittance, rejections) and resourcing (both across and within functions/teams). A reframed ‘whole of organisation’ lens with tax and payroll at the head of the table leading conversations around the implementation of Payday Super, will cement the functions as real time strategic partners to the business and bring the following benefits:

1. Holistic perspective: Tax and payroll considerations are a crucial part of the broader financial strategy (cashflow, regulatory, etc.). By leading the implementation of Payday Super, these teams can ensure that overarching governance strategies are integrated seamlessly with other business objectives.
2. Strategic insights: Tax and payroll teams bring a strategic perspective, and an understanding of current organisational challenges, that can inform broader business decisions. This enables a proactive approach to the implementation of compliance measures - as an example, the accurate capture of employee information required at onboarding to mitigate risk of data bounce backs, driving overall efficiency and risk management.
3. Compliance assurance: Tax and payroll teams are well-versed in regulatory requirements and can ensure that the transformation aligns with legal and compliance standards, reducing the risk of non-compliance, potential penalties and, importantly, reputational impact (particularly for a reform where the key Government/ATO objective is focused on targeting ‘wage theft’ (superannuation) non-compliance) - not to mention, bring greater governance to paying your people correctly!

As noted, Payday Super requires strategic planning and coordination across multiple functions to ensure seamless implementation and ongoing management. First, tax and payroll functions will need to coordinate and align (ensuring a clear understanding of each other’s roles and responsibilities) and also interact with key internal and external stakeholders - ultimately, the Payday Super ‘solution’ should ensure clarity of process, mitigation of non-compliance, efficient management and appropriate risk governance and controls.

Tax and payroll teams should take a proactive approach and lead the conversations with other key business stakeholders like HR, finance, treasury and IT, as well as external technology vendors, bringing to these conversations, ideas such as:

• Current state assessment: Developing a deep insight into the operational landscape, as this understanding is essential for effectively implementing an organisational-bespoke Payday Super ‘solution’.
• Process optimisation: Identifying areas for immediate process enhancement, creating space in the functions to enable the implementation of Payday Super, by assessing and refining payroll workflows, leveraging automation where possible, and considering your broader operating model as a way to drive efficiency and alignment with strategic objectives.
• Technology: Assessing and optimising technology solutions to drive improvements in accuracy (and reducing manual intervention), including real-time automation and data analytics strategies to proactively prepare for ATO data matching systems and enhanced validation of employee data at the point of onboarding.

Payday Super requires that employers have a thorough understanding of their current operational environment (including technology, resources and processes) and the capabilities and roles of external stakeholders. This foundational knowledge is crucial for compliance with the proposed changes under Payday Super.

This understanding presents a strategic opportunity to reframe the tax and payroll function, using Payday Super as the lever. This opportunity encompasses optimising technology, adjusting operating models to streamline processes, and optimal allocation of resourcing - honing in on this opportunity, in the context of major statutory reform, will ensure that tax and payroll teams are perfectly poised to spearhead the conversation and drive the strategic transformation necessary for Payday Super readiness.

For more information

If you have any further questions on Payday Super or if you want to discuss your organisation’s existing superannuation governance and compliance arrangements, please reach out to a member of our PwC Workforce team.