Payday Super: How the ATO is strengthening superannuation compliance

Payday Super is the biggest change to the payroll landscape since the Australian Taxation Office (ATO) introduced Single Touch Payroll (STP) in 2018. The substantial changes create new challenges for Tax, Payroll and Human Resources teams across all organisations.

Starting 1 July 2026, employers will be required to pay Superannuation Guarantee (SG) contributions every pay cycle, instead of each quarter. This reform will increase SG transparency with employees being able to check contributions after each payday rather than waiting up to four months. 

The changes are designed to ensure employees receive their SG contributions in a timely manner and are poised to increase the employee-initiated SG notifications both to the ATO and the Fair Work Ombudsman, which is a newly implemented avenue for employees to report non-compliance. 

How will Payday Super operate?

• 7-day rule: When an employee receives Ordinary Time Earnings (OTE), a new 7-day deadline is set for contributions to reach the employees’ Superannuation Fund. This timeframe is dedicated for the processing of funds through the payment system and clearing houses. 

We have already been made aware of potential exceptions including:

• Contributions for OTE paid during the first two weeks of a new employee’s employment will have their due date postponed until after this initial two-week period.
• Small and irregular payments made outside of an employee’s regular pay cycle are not considered a payday until the next scheduled OTE payment takes place.

Superannuation Guarantee Charge (SGC) overhauls: Where employers fail to pay contributions in full and on time, they are liable for an SGC under the below updated calculation.

SGC

• Shortfall calculation - Firstly, SG shortfalls will be calculated on OTE instead of an employee’s ‘Salary and Wages’. This change creates consistency and aligns the calculation with the calculation of SG contributions.
• Notional Earnings (Interest) – SG shortfalls will be compounded daily at the ‘general interest rate’ (which was 11.36% from July - September 2024) instead of the current flat rate of 10% p/a.
• Administration charges - The administrative element which is currently $20 per employee will be replaced with a new uplift system. Going forward the administrative component will be a percentage of the total SG shortfall up to a maximum of 60%. The percentage will be able to be reduced through various factors including if the SGC is via a voluntary disclosure. Thus, incentivising the correction of unpaid SG.

Additional interest and penalties

• General Interest Charge (GIC) - Following assessment, GIC will continue to accrue on any outstanding SG shortfall and notional earnings amounts. This will continue to compound during assessment to compensate the employee for delays.
• Payment penalty - Once assessed for a SGC, employers have 28 days to pay otherwise they face an SGC payment penalty which can be up to 50% of the unpaid amount.

Income tax deductibility

• Deductibility – Unlike previously the SGC elements (SG Shortfall, Notional Earnings and Administration charges) will all be tax-deductible. Penalties and GIC post assessment will remain non-deductible.

Changes to support the transition

• There will be a revision of Choice of Fund guidelines, that will make it easier for employees to nominate their existing Superannuation Fund when starting a new job.
• Late contributions will now automatically count towards the earliest possible payday that has an outstanding SG Shortfall (and not yet been assessed for SGC), rather than requiring an election as to which period this should apply. This will minimise potential liabilities and penalties.
• Superannuation Funds will be required to allocate or return contributions within three business days instead of the current 20 business days.

What preparations can be made?

Treasury has announced that the legislative design will progress will take place throughout the end of 2024, ahead of the draft legislation being circulated leading up to the transition on 1 July 2026. With this date rapidly approaching, employers should consider the below preparation checklist:

Superannuation compliance testing

• Following the introduction of STP Phase 2, the ATO collect real time information and can determine if employers are paying SG on OTE wage codes. Therefore, as a first step, we recommend that employers conduct a wage code review to ensure SG is calculated on all applicable payments, and that the STP reporting codes are also aligned. 
• For a much higher level of assurance, following the review of wage codes we recommend conducting testing, at least at a sample level, of transactional data to test that the system is working as the business expects.

Onboarding processes

• Employers will need to evaluate if the internal processes and controls will be sufficient for the updated reporting requirements. We can provide best practice guidance on what should be implemented to ensure that the required steps are taken when new employees join your business (e.g. requesting stapled Superannuation Fund details).

Payroll timing

• Processing time is more critical than ever, employers should assess whether the changes (including the increase in payment frequencies) will impact payroll’s ability to process the SG contributions on time. As part of this employers should consider that automations can be made to reporting and if a clearinghouse can be integrated with the payroll system to speed up processes.
• Review the suitability of current employee pay cycles (e.g., weekly, fortnightly or monthly) for future needs.
• Plan future cash flows to accommodate the requirement of paying SG immediately after a pay run instead of quarterly.

FOR MORE INFORMATION

Should you wish to learn more about how RSM’s SG testing is helping employers prepare for Payday Super or if you have any other questions, please contact your local RSM Global Employer Services representative:
•    Rick Kimberley – National Leader - [email protected]
•    Gina Nedeljkovic – WA Leader - [email protected]
•    Peter de Sousa – VIC Leader - [email protected]
•    Jason Dutt – NSW - [email protected]
•    Niamh Oakley – WA - [email protected]