What’s emerging? Treasury releases long-awaited draft Payday Super legislation

On 14 March 2025, Federal Treasury released Payday Super draft legislation (Draft Law) (broadly scheduled for 1 July 2026 commencement), the effect of which is a rewrite of the Superannuation Guarantee (SG) (including the SG Charge (SGC)) framework, requiring contributions to be received by employees’ super funds within 7 calendar days from salary/wages payment.

The Draft Law proposes to implement key design principles outlined in the September 2024 fact sheet released by Federal Treasury, whilst also addressing several key questions that had arisen (such as the application of Payday Super to contractors who are ‘employees’ for SG purposes).

The Draft Law requires more frequent contributions, prompt dealings with superannuation bounce-backs, and timely identification of, and reporting of, compliance breaches to the Australian Taxation Office (ATO). Together with innovative remission criteria that is impacted by how quickly a voluntary disclosure is made, these measures demand – and reward – processes and controls that are robust and proactive.

We have outlined below the key aspects of the proposed framework. 

Primary obligations to avoid liability for the SGC 

Broadly, the Draft Law requires that employers meet three key obligations to avoid an SGC liability - being:

• The organisation accurately calculates each employee’s ‘individual SG amount’ (prevailing SG rate multiplied by ‘qualifying earnings’ (detailed below).
• The required contributions are timely – contributions must now be made to superannuation funds before the end of the 7th calendar day after the payment of ‘qualifying earnings’. This is known as the ‘QE day’.
• Comply with choice of fund requirements, considering changes to streamline the onboarding process which could commence prior to 1 July 2026 (as noted below).

‘Qualifying earnings’ 

Under the current SGC regime, SG shortfalls must be calculated by reference to employee ‘salary and wages’, instead of the (typically) narrower ‘ordinary times earnings’ (OTE) base. In welcome news, under the revised framework, there is a single earnings base – generally being an employee’s OTE, to calculate SG obligations in the ordinary course and, also, for the purposes of SGC calculations. This base is referred to as ‘qualifying earnings’ which, similar to the current regime, includes any sacrificed amounts where the individual has reduced applicable earnings for superannuation contributions.

‘Maximum contributions base’ 

Under the Draft Law, the ‘maximum contributions base’ will be applied on an annual basis based on the concessional contributions cap, rather than quarterly. This may require configuration changes to payroll systems, particularly where contribution practices include quarterly top-ups.

Further the proposed law is structured such that, if during a financial year an employee’s ‘qualifying earnings’ exceeds the ‘maximum contributions base’, any subsequent payment of ‘qualifying earnings’ is treated as nil. Where contributions are made in excess of the concessional contributions cap, the Draft Law provides for an ability to carry forward surplus contributions made within 12 months before a ‘QE day’, providing the contribution has not been attributed to any other ‘QE day’.

Exceptions to the seven days contribution requirement

The Draft Law provides a series of ‘exceptions’ to the seven days requirement for contributions being: 

• employers will generally have an additional 14 calendar days to make SG contributions for new employees to accommodate the additional time it may take for onboarding
• where an employer makes a contribution to a stapled fund, as notified by the Commissioner of Taxation (Commissioner), which is rejected, the total period is extended to 42 days
• SG on out-of-cycle earnings does not have to be paid until the end of the ‘usual period’ for the next ‘QE day’ (examples noted include commissions, bonuses, advances and back payments), with the Commissioner to determine the kinds of payments that are eligible by legislative instrument
• exceptional circumstances where, for periods covered by a determination, the Commissioner may grant extensions of time to a class of affected employers (examples noted include natural disasters or widespread ICT or communications outages).

Revamped SGC regime

The SGC regime will continue to apply to employers who fail to meet their obligations to make superannuation contributions on behalf of their employees. The ‘SG Shortfall’ for a given employee will comprise multiple components, as follows: ‘individual final SG shortfall’; ‘individual notional earnings component’; ‘administrative uplift amount’ (assessed at an employer level) and any applicable ‘choice loadings’. 

However, distinct from the current design, the revamped SGC regime will not require a SGC statement to be lodged by an employer before the charge becomes payable; rather, the Commissioner will assess an ‘SG shortfall’ for a ‘QE day’, and the employer will then be liable for the SGC on the day the assessment is made. 

Importantly, the assessment can be made unilaterally by the Commissioner, using sources such as single touch payroll and superannuation fund reporting.

The Commissioner may not issue a unilaterally calculated Notice of Assessment if an employer lodges a ‘voluntary disclosure statement’ in the approved form beforehand, hence, an employer’s governance and ability to identify SG shortfalls promptly will be key to maintaining a positive compliance record.

‘Individual base SG shortfall’ / ‘Individual final SG shortfall’

An ‘individual base SG shortfall’ arises for an employee if timely contributions are less than the ‘individual SG amount’ for a ‘QE day’. 

However, during the ‘late period’ for the ‘QE day’ (being the period from the 8th day after the ‘QE day’ until the Commissioner makes an SGC assessment for that day), an employer can reduce their ‘individual final SG shortfall’ by making late contributions (i.e. the ‘individual final SG shortfall’ is only the portion of the ‘individual SG amount’ that remains unpaid after applying late contributions).

It is relevant to note that, unlike the current regime, there is no requirement to elect for ‘late period’ contributions to be allocated to a ‘QE day’; instead, eligible contributions made during the ‘late period’ will be applied automatically to the earliest ‘QE day’ with a ‘SG shortfall’. This will have the effect of recurring SG shortfalls for each subsequent ‘QE day’, until the original ‘individual base SG shortfall’ is ‘caught up’. Hence, embedding proactive analytical reviews to identify such instances will be crucial.

‘Individual notional earnings component’ 

The individual notional earnings component of the employer’s SG shortfall is similar to the nominal interest component of the current SG framework. Where an employer has an ‘individual base SG shortfall’ for a ‘QE day’, the ‘individual notional earnings component’ will be calculated on a daily compounding basis based on the prevalent GIC rate. This calculation will continue during the ‘late period’, calculated on the ‘individual base SG shortfall’, for each day that the ‘individual final SG shortfall’ is greater than nil.

To the extent that an employer lodges a ‘voluntary disclosure statement’, on the basis that date of receipt of SG contributions may be unknown to an employer, the Draft Law provides for a deemed date being seven days from the date the SG contribution is debited from an employer account. 

‘Administrative uplift amount’

Where the current SGC regime provides for a static $20 per employee per quarter administration component, the Draft Law creates a significantly different model. This includes potentially higher charges and an innovative remission model that provides incentives, not only for voluntary disclosures of non-compliance, but scaled in accordance with how quickly an employer makes the disclosure.

The Draft Laws provide for an initial ‘administrative uplift amount’ of 60% of the sum of the total of the employer’s ‘individual final SG shortfalls’ and ‘individual notional earnings component’ for the ‘QE day’. This amount can be reduced in accordance with a formulaic based on two factors:

i) whether the Commissioner has previously made a unilateral SGC assessment, and
ii) whether and when the employer lodges a ‘voluntary disclosure statement’.

For example, where an ‘SG shortfall’ exists, the administrative uplift amount can be reduced by 40% if the voluntary disclosure is made within 30 days of the QE day, or by 15% if the voluntary disclosure is made more than 120 days after QE day (with a sliding scale for disclosures made more than 30 days, but less than 120 days after the QE day).

In addition, if an organisation has had no Commissioner-initiated assessments in the past 24 months, there is a further reduction of 20%. In essence, this means that if an organisation makes a voluntary disclosure within 30 days of the ‘QE day’ and with no prior Commissioner-initiated assessments, the uplift percentage is nil – this mechanism will highlight, and reward, organisations who invest in proactive governance.

It is important to note that the 24-month period cannot commence earlier than 1 July 2026, which essentially means that SG errors identified and remediated prior to 1 July 2026 will not prevent an employer from claiming the 20% remittance where errors arise after the commencement date of this new legislation.

‘Choice loading’

The Draft Laws provide that the current 25% ‘choice loading’ will continue to be calculated on the value of the contributions for a ‘QE day’ where the employer has not complied with the choice of fund provisions. However, the ‘choice loading’ limit has risen from $500 to $1,200 per ‘notice period’. For new employees commencing post 1 July 2026, this will generally be the period from employment commencement to when the Commissioner provides written notice.

Late or non-payment of SGC

The Draft Laws create a penalty regime for late or non-payment of an SGC. Where an employer is liable for an SGC and it remains unpaid after 28 days, the Commissioner must issue a notice to pay. This notice will include GIC for late payment plus a 25% penalty on the unpaid portion (where the amount remains unpaid 28 days after the notice). The penalty amount will increase to 50% if a late payment penalty has been imposed on the employer on a previous occasion within the past 24 months. Additionally, GIC will continue to accrue until the ‘SG shortfall’ is fully paid. 

Tax deductibility

In good news, under the new framework, late contributions and the SGC will be tax deductible. However, any applicable GIC or late payment penalty related to the SGC will not be tax deductible.

Employee onboarding reforms

The Draft Laws propose an amendment to the stapled fund provisions to allow an employer (or agent) to request for stapled fund details from the Commissioner before, at, or after an employee is offered choice. Currently, this request is only able to be made after the employee has been offered choice, causing delays to the onboarding process. The law would also require the employee to provide those details to the employee (i.e. the stapled fund notification). 

Payday Super represents a fundamental re-write of the statutory regime and brings with it an expectation that employers will implement strong governance over their superannuation processes, that includes prompt and proactive correction and voluntary disclosure of errors. This is clearly seen through the design of the ‘administrative uplift amount’ and the introduction of an innovative remission regime, where factors such as timely voluntary disclosures and compliance history can have a material impact.

Unfortunately, there does not appear to be allowances in the legislation for practical issues such as the impact that public holiday blocks (e.g. Christmas, new year and Easter periods) will have on the seven-day contribution requirements, however the Commissioner has been given discretion to authorise extensions for classes of employers, in exceptional circumstances.

Importantly, Payday Super offers employers an incentive to start the new regime with a clean slate from a compliance history perspective and so an organisation’s investment in governance can be expected to have tangible benefits from the commencement of Payday Super. To this end, whilst these are Draft Laws, the detail allows organisations to commence planning for implementation of appropriate processes and controls, including:

• Onboarding: Organisations should critically review their current onboarding processes to minimise typical rejection errors, such as incorrect employee master data and choice of fund information. Automation solutions should be considered.
• System configurations: A headline takeaway from the exposure drafts is the ability for the Commissioner to make unilateral SGC assessments from data sources including Single Touch Payroll and Super Fund Reporting. This represents a further progression of the ATO’s reliance on payroll data as a source of truth when assessing an organisation’s compliance profile. In preparation for this latest progression, employers should thoroughly review their system configurations for SG calculation and Single Touch Payroll reporting. 
• Assessment of remittances framework: The tightened deadline of seven calendar days will require that remittances are ideally approved and processed on (or shortly after) the same day as ‘QE day’. It may also require a review of current contracting terms agreed with a clearing house (in relation to processing of monies to superannuation funds and reporting of rejections) and will need to consider any updates to the SuperStream environment (e.g. changes to data and payment standards). Further, additional controls will need to be developed in relation to rejections and processing thereof.
• Real-time data validation/testing: Unilateral SGC assessment by the Commissioner, and the ensuing impact (e.g. on the ‘administrative uplift amount’), can be contrasted with the incentives available for voluntary disclosures. In this context, it is paramount that organisations develop and implement real-time data tools that are able to mitigate errors before processing payroll and correct errors as soon as practicable on a voluntary basis. As mentioned, doing so can be expected to generate tangible benefits for an organisation.

Whilst Payday Super is not scheduled to commence for another 15 months, the Draft Laws highlight the magnitude of the change, impacting all elements of the superannuation cycle from onboarding through to remittance. Organisations’ tax and payroll functions, in particular, will need to critically review operations to understand and implement areas of efficiency to open up ‘space’ to deal with the varied requirements under Payday Super. 

Importantly, with the evident statutory focus on organisations’ governance, and noting the scale of investment required to address the multiple considerations posed by the Draft Law, organisations may wish to commence planning, with a view to acting thereupon, sooner rather than later.