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What’s emerging: Federal Treasury releases more information about Payday Super

19 September 2024

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On 18 September 2024, Treasury released a Payday Super fact sheet providing additional information in relation to the proposed Payday Super regime. Payday Super was first announced in the 2023-24 Federal Budget, seeking to align the timing of payment of superannuation to the payment of salary or wages (instead of the current quarterly requirement).

The fact sheet confirms that the Payday Super regime is proposed to commence from 1 July 2026, with required legislative amendments to be introduced into Parliament before the end of the calendar year. The fact sheet also broadly outlines the regime’s objectives as being to increase retirement savings and to deter ‘superannuation theft’.

The relevance of these objectives can be seen throughout the fact sheet’s proposed design framework. While the fact sheet proposes an aligned superannuation ‘due date’ being seven calendar days after each ‘payday’, it also provides for an updated Superannuation Guarantee (SG) Charge ‘to reflect the seriousness of underpayment or late payment’. The fact sheet also flags adjustments to Single Touch Payroll (STP) reporting to allow the Australian Taxation Office (ATO) to better ‘facilitate’ compliance.

The fact sheet has also flagged that, following consultation regarding the administrative design of the Payday Super regime to be conducted by the ATO, there may be some refinements to the details set out within the fact sheet.

In detail

What is a ‘payday’ and when is superannuation due?

‘Payday’ is proposed to be the ‘date that an employer makes an Ordinary Time Earnings (OTE) payment to an employee’.

The fact sheet provides that the ‘due date’ for contributions to arrive in an employee's superannuation fund is seven calendar days from ‘payday’. Two exceptions are proposed, being for new hires (‘due date’ for OTE paid within the first two weeks will be deferred until after the two weeks) and for ‘small and irregular payments’ outside the employee’s ordinary pay cycle (deferred to the next regular ‘payday’).

The fact sheet does not provide further detail on what may constitute a ‘small and irregular payment’, but this concept will likely have relevance for many employers in relation to off-cycle pay runs.

Remediating non-compliance

Under the current SG regime, in the event of a shortfall, an applicable SG Charge is made up of three components:

The SG shortfall calculated on applicable employees’ Salary or Wages (not just OTE)
Nominal interest of 10% per annum (accruing from the start of the relevant quarter)
Administration fee of $20 per employee, per quarter.

The fact sheet proposes an ‘updated’ SG charge, with the three components being:

The SG shortfall calculated on OTE (rather than the current Salary or Wages)
Notional Earnings comprising a compounding daily interest calculated at the general interest charge (GIC) (accruing from the day after the ‘due date’)
Administration uplift, calculated as an uplift of the SG shortfall component of up to 60%

In addition, where an SG charge is assessed but remains unpaid, GIC will accrue on all three components on a daily compounding basis. Further, if the SG charge is not paid in full within 28 days, an SG charge payment penalty of up to 50% will apply.

Also, the fact sheet proposes that the SG charge (which is currently non-deductible) will become deductible, although additional penalties and interest will remain non-deductible.

Whilst the proposed ‘updated’ SG charge framework simplifies the SG shortfall component and makes the SG charge deductible, there are several deterrence components in-built. For example, the notional earnings’ daily compounding interest rate (at the GIC, which is currently 11.36%) and the potential 60% administration uplift.

For the latter, in particular, the fact sheet notes that this ‘will be reduced when employers voluntarily disclose’, which suggests that this will be a discretionary component that will be able to be toggled by the ATO based on factors such as compliance history, nature of assessment (voluntary or otherwise), etc.

Late contributions

Currently, where an employer makes a late contribution, they have the choice to count that as a contribution for the quarter in which it is made, or to elect to utilise it as a Late Payment Offset against the SG Charge for the prior quarter. Under the proposed Payday Super regime, this choice will be removed; rather, contributions will ‘automatically count towards the earliest possible payday which still has an outstanding SG shortfall’.

Whilst this concept appears logical in principle, it may provide unexpected outcomes (creating a tail of SG charges). For example, where a single ‘payday’ was miscalculated and subsequently caught up, rather than count the subsequent catchup payment against the shortfall ‘payday’ (as a late payment offset), there would ostensibly be a series of SG charges for ‘paydays’ until the point of the catch up payment (i.e. where contributions for a ‘payday’ are carried to the prior ‘payday’, creating a shortfall for the ‘payday’ it is carried from).

It is possible/likely that ensuing legislation will cater for this, but it is clear that the design places a significant onus on employers to catch up and remediate errors as soon as practicable.

Transition support

To support transition to Payday Super, a number of ancillary changes are proposed, including:

Cutting the deadline for superannuation funds to allocate or return contributions to 3 business days (from 20)
Revising SuperStream data and payment standards
Revising choice of fund rules, where employers will be able to show employees their ‘stapled’ fund during onboarding

ATO compliance and proposed STP reporting change

The fact sheet notes that, once Payday Super is live, the ATO will have ‘increased visibility’ across employers, being able to match ‘STP data and superannuation fund reporting’ to ‘proactively intervene sooner’. Whilst this level of data analytics is already existent, currently, there is a level of misalignment (i.e. STP is essentially reported per ‘payday’ where superannuation remittances (and associated superannuation fund reporting) is not.

Additionally, the fact sheet flags that, to facilitate compliance, employers will be required to report in STP both the OTE and the superannuation liability (where currently an employer has a choice to report either). This will naturally present clearer data to the ATO (and to employees) for validation (e.g. where the superannuation liability may be ‘muddied’ due to non-SG obligations).

Key takeaways

It is evident from the fact sheet that the introduction of Payday Super is as much about compliance and visibility, as it is about increasing the frequency of contributions. In this regard, ‘readiness’ for Payday Super will be much broader than simply adjusting one’s remittance cycle and processes for superannuation to cater for the ‘due date’.

Some of the key governance aspects employers are likely to need to review as we move to the commencement date of 1 July 2026 include:

Payroll configurations for both superannuation calculation and STP reporting (particularly with the proposed change to STP reporting).
Clearing house contractual terms (to ensure receipt in employee’s superannuation funds by the ‘due date’).
Processes relating to addressing bounce-backs (for incorrect employee details).
The employee on-boarding experience (to cater for the 2-week deferral period and the revised choice of fund rules).
Refreshed controls (including data validation) to identify and remediate non-compliance (particularly in the context of the ‘updated’ SG charge regime).

Employers may also need to consider communication strategies, both with executive leadership/board (who will want to understand governance rigidity to address this significant reform) and employees (who will be exposed to a clearer, and real-time, window into their superannuation savings).

It is also relevant to note that the fact sheet did not provide any further detail in relation to how the capping measures will interact with the proposed Payday Super regime (for example, currently OTE is capped at a maximum quarterly amount). Given that payroll systems and off-system processes often have complicated rules and mechanisms in relation to capping (for bonus period, high income earners, etc.), this detail will also be important for employers as they critically assess governance in the lead up to Payday Super in 2026.

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