What’s emerging: Payday Super consultation paper released
30 October 2023
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Treasury has released a consultation paper on the ‘Securing Australians’ Superannuation’ package, seeking input from relevant stakeholders for the proposed operation of payday super. Payday super was first announced in the 2023-24 Federal Budget and is proposed to commence from 1 July 2026. Under the payday super regime, employers will be required to remit their employees’ Superannuation Guarantee (SG) entitlements on the same day they pay salary and wages, rather than quarterly.
From the consultation paper, it is clear that an effective payday super framework is instrumental in the government's commitment to reduce unpaid superannuation entitlements through a data-led approach. The government is committed to redesigning the SG framework, including the operation of the Superannuation Guarantee Charge (SGC), together with stakeholder consultation, to achieve this outcome.
PwC will be preparing a submission in response to the consultation paper ahead of the due date of 3 November 2023, responding to the 49 questions posed by Treasury as part of the consultation process.
In detail
Following the 2023-24 Federal Budget, and the ATO’s 2023-24 Corporate Plan, we have seen a renewed focus on SG from both the regulator and government, both committing to adopting a more preventative and proactive data-led approach in dealing with SG compliance matters.
The overarching objectives of the ATO and the government are to address the structural drivers of underpaid SG and reduce the SG gap, estimated to be as high as $3.4 billion in 2019-20.
Closer alignment between super remittances and salary payments will provide the ATO with better visibility of SG entitlements, allowing it to identify (and pursue) instances of non-compliance. However, shifting the timing and frequency of payment to a payday model will require a fundamental overhaul to key features of the current SG framework.
A summary of the key challenges presented by a payday super regime are outlined below:
- Timing of the payment and definition of payday – Treasury has proposed two potential payday super models for consideration. An ‘employer payment’ model, which would impose the requirement on the employer to make payment of SG contributions on the day the salary and wages are paid, or a ‘due date’ model, which would require contributions to be received by superannuation funds within a certain number of days following ‘payday.’ In both cases, Treasury is seeking input on the definition of ‘payday’ and has proposed that payday is any time a payment is made to an employee that has an Ordinary Time Earnings (OTE) component.
- Application of the SG charge - The current SG charge is inherently punitive in its design to discourage employers from making SG payments late and compensating employees for missed SG contributions. Additionally, where an SG payment is made late, the base for calculation defaults to an employee's salary and wage base (rather than OTE), which includes payments that were never intended to be subject to superannuation, such as overtime.
The ATO acknowledges that the SG charge will need to be redesigned as part of payday super implementation, including consideration of: the nominal interest charge (i.e. whether the current rate of 10% per annum is still appropriate), the administrative fee, (i.e. how should the current rate of $20 per person per quarter be redesigned), whether late payments should continue to be non-deductible, whether employers will be permitted to continue to use late payment offsets and carry forward overpayments, and whether there should continue to be discretion available to the Commissioner to remit additional penalties. - Rectification of underpayments (discrete errors) - There are several reasons why superannuation contributions may not reach an employee's fund by the due date that are outside of an employer's control. Examples include employees not providing SG fund details or employees changing their fund without advising their employer resulting in bounce backs. Consideration will be required as to whether there will be discretion afforded to employers for these discrete errors.
- Application of the quarterly Maximum Contribution Base (MCB) – where an employee earns more than the quarterly MCB, an employer is not required to contribute SG on the excess. The revised framework will need to consider whether the MCB is administered on a frequency that mirrors the pay cycle or whether a different period is used for all employees.
ATO data analytics
In addition, the consultation paper announced the implementation of a ‘new unified database’ which is to commence in 2023. This database will match Single Touch Payroll (STP) data from employers and Member Account Transaction Service (MATS) data from superannuation funds at scale, as well as provide a single-source showing the near-real time recorded SG position for employers and employees This will enable the ATO to identify instances and patterns of late or underpayment of SG.
We expect this is the ‘powerful analytics tool’ recently announced by the ATO’s Deputy Commissioner for Superannuation & Employer to detect SG shortfalls from employers, which aligns to the ATO’s recent focus on data-led superannuation reviews and debt-recovery proactivity.
Key takeaways
The Government is open to engaging with SG stakeholders on the design of this package to ensure that they create a functional system for the administration of SG, which also moves towards closing the SG gap.
If you have any further questions on the paper or want to provide input to the PwC submission to the consultation paper, please reach out to a member of your PwC team.
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