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In the Federal Budget delivered in May 2023, the government announced the introduction of “Payday Super” from 1 July 2026. Payday Super requires all employers to pay superannuation entitlements on the same day as paying salary and wages, instead of quarterly. This means employers will be required to make super payments more frequently, potentially up to 22 times more often for those who pay wages fortnightly, or 48 times more often for those who pay wages weekly
At the end of June 2023, the Australian Tax Office (ATO) estimated more than A$2.2 billion of super debt was still owed by employers to employees. In FY20, the ATO estimated $3.4 billion worth of super went unpaid.
The introduction of Payday Super hopes to eliminate the millions of dollars of superannuation that is often left unpaid by employers. The change will give employees greater visibility over whether their super has been paid and will provide the Australian Taxation Office (ATO) greater visibility over the super payments being made by employers, making it easier for the ATO to track unpaid super.
Whilst 40% of businesses pay super more frequently than on a quarterly basis, for 60% of Australian businesses who meet the current law of quarterly payments, the introduction of Payday Super will require significant changes to financial planning and payroll.
This includes introducing automated payroll systems or enhancing software, setting aside more working capital to enable the business to pay superannuation entitlements more frequently, and establishing better communication with company accountants. Below are the key operating areas that will be affected for Australian businesses.
Administrative Burden
The introduction of Payday Super will significantly increase the administrative load for Australian businesses as they will have to handle an increased number of transactions and ensure they are paying the exact amount of super that is required.
This will result in Australian business owners needing to upgrade their payroll software. If they don’t upgrade their software to support the additional payments and calculations required, businesses could end up over or underpaying super through incorrect calculations, which could lead to fines from the ATO or loss of working capital (it’s extremely difficult to get super payment back!).
For businesses who employ casual employees, calculating super payments for each paycycle may be tricky as hours change on a weekly basis, thus changing the amount of super that is owed. Therefore, to reduce the anticipated administrative load, employers may decide to reduce the frequency of paycycles. This jeopardises employee trust and satisfaction and risks the business’s reputation amongst potential talent.
Compliance and Reporting
With this change, The Australian Taxation Office (ATO) will have greater visibility of super payments through Single Touch Payroll. Historically, many unpaid super contributions have gone undetected – with Payday Super, the ATO will be able to see whether businesses are compliant and meeting regulations, resulting in added pressure to adhere to governance.
This will impact businesses as they must ensure timely and accurate superannuation payments to avoid penalties and fines from the ATO. Increased oversight may require additional resources for compliance, leading to higher administrative costs and a greater emphasis on maintaining accurate payroll records to avoid potential audits and reputational damage.
Financial Impact
Perhaps the biggest challenge for SMEs is the impact on their operating costs and cash flow. There will be increased administrative costs associated with processing more frequent payments, software upgrades for payroll as well as project management to ensure accuracy of hours. In addition, many businesses’ cash flow will be negatively impacted as it’s very common for SMEs to hold onto superannuation and account for quarterly payments in their monthly budgeting or financial forecasting instead of using the capital on a weekly or monthly basis to invest in growth opportunities and paying suppliers.
If businesses fail to pay their employees’ superannuation on time, they will be required to lodge a Superannuation Guarantee (SG) Charge Statement and pay the associated charges, resulting in two-fold financial pressure. Additionally, the ATO may notify affected employees about the outstanding SG and could initiate legal proceedings to recover the owed amounts, further complicating the business’s financial and legal standing. Not to mention, late penalties may also be applied to the next super payment!
Industry Concerns
Whilst the intention behind the introduction of Payday Super is to support everyday Australians, there are concerns with the broader community of how this will impact the operation of small businesses. In fact, some representatives, such as the Council of Small Business Organisations Australia (COSBOA) have expressed concerns on how this will negatively impact the survival and success of businesses Australia-wide, especially those with tighter margins or seasonal fluctuations.
Preparation Period
The ATO has provided a transitional period until July 2026 to allow businesses the time they need to implement changes, and are planning on engaging with small businesses ahead of time to support them in this transition.
To mitigate the above challenges, many businesses may opt to change their paycycle from weekly or fortnightly to monthly. Whilst this may benefit employers, it is likely to cause financial stress for employees. There has to be a solution that supports employers in adhering to regulations, without impacting the daily lives of employees. Fortunately, there is. The solution is Earned Wage Access.
Earned Wage Access (EWA) is a financial tool that can support businesses as they transition in alignment with the new Payday Super legislation. Employers can make paydays less frequent to reduce the administrative burden associated with superannuation payments, whilst still enabling their employees to access their earned wages whenever they please – helping the business maintain a positive cash flow and enabling employees to budget effectively.
Paytime’s platform integrates seamlessly into a multitude of payroll and time & attendance systems whilst maintaining the utmost data security and privacy. For employees, this allows employees to see how much money they have earned from their mobile app at any time. It allows them to withdraw money they’ve earned, that is debt free, whilst waiting for their next payday. The amount they’ve withdrawn is then deducted from what is to be paid during payroll.
Our access to capital allows us to fund the intra-pay withdrawals, so for your company there is no effect on cash flow whatsoever, meaning you can support the financial wellbeing of employees whilst optimising your payroll processes to meet changing legislation.
