Navigating the Payday super reforms: what employers need to know

Employers will need to ensure that their payroll function and systems are ready to fully implement the upcoming payday superannuation changes.

With the passing of the Treasury Laws Amendment (Payday Superannuation) Bill 2025 (Cth) and Superannuation Guarantee Charge Amendment Bill 2025 (Cth) (the Payday Super Framework), the long-awaited “payday super” reforms are set to commence on 1 July 2026. For many operators in the broader superannuation industry and for many businesses, this proposed timing is considered aggressive, with calls for further time to implement necessary administrative and systems changes.

Those changes are designed to create a strong incentive for employers to make superannuation guarantee contributions at the same time as they pay employees.  By requiring contributions to be made more frequently, the government believes that the non-payment or underpayment of contributions should be detectable and be able to be managed at an earlier stage than is currently the case.

What’s changing?

“Qualifying earnings” - a new method of calculating superannuation guarantee amounts

Currently there are two earnings bases used in the calculation of superannuation contributions, ordinary time earnings and “salary or wages”.  Ordinary time earnings is used to determine the contribution amount that an employer needs to make to reduce their superannuation guarantee charge (SGC) liability to nil, while “salary or wages” is used to calculate an employer’s individual superannuation guarantee (SG) shortfalls if they are liable for the SGC.  Those two amounts can be different.

Instead of using those concepts, “qualifying earnings” (QE) will now be used to calculate SG amounts, both for working out the individual SG amount required to avoid an SG shortfall and for calculating the amount of SGC if an employer has a shortfall.

QE includes:

• the employee’s ordinary time earnings;
• superannuation contributions from salary sacrifice arrangements – the amount an employee sacrifices will still form part of their QE, so that salary sacrifice arrangements will not result in employees receiving less than the appropriate superannuation amount; and
• other amounts included in an employee’s pay, such as commissions, payments for board-level executive duties, and payments under certain types of services contracts.

The timing of SG contribution payments

An employer’s obligation to contribute an individual SG amount for an employee arises on “QE day”, the day when the employer pays an employee their QE.

Crucially, to be considered an “eligible contribution”, the Payday Super Framework requires super contributions to be received and able to be allocated within 7 business days of QE day.  This has been extended from the originally proposed 7 calendar days.

It will be an employer who is responsible if the total 7 business day timing is missed.

Helpfully, the 7 business day deadline can be extended in certain limited cases. Examples include the first contribution for a new employee and/or to a new superannuation fund for an existing employee (20 business days), out-of-cycle earnings such as commissions, bonuses, payments in advance and back payments (to be specified by regulations), and where the Australian Taxation Office (ATO) determines that exceptional circumstances have affected one or more kinds of employers (which may include matters as a result of natural disasters or widespread IT outages).

Allocation of funds

After receiving an employer contribution and the prescribed accompanying information, superannuation funds must allocate funds into an employee’s account as soon as practicable and no later than 3 business days.

The phrase ‘able to be allocated’ is a key concept in the definition of “eligible contribution” and is intended to describe the ability of the superannuation fund to allocate an amount received from, or on behalf of, an employer for the benefit of an employee. This means that the superannuation fund must be able to identify the member that the contribution relates to in order to be able to allocate the contribution to an active account of the employee within the fund. If a contribution is rejected by the fund, for example because the TFN provided is incorrect, the contribution is not ‘able to be allocated’ and is not an eligible contribution, thus giving rise to an SG shortfall.

Updates to the calculation of the Superannuation Guarantee Charge

The Payday Super Framework will also revamp the SGC, which is currently the total of:

• the employer’s SG shortfalls for the quarter;
• interest of 10% per annum;
• a $20 administration fee for each employee with an SG shortfall; and
• up to a 200% additional penalty – some of this amount may be subject to remission depending on the facts of each case.

Under the Payday Super Framework, an employer will be liable for the SG charge if they have a SG shortfall because they did not make on-time eligible contributions for the relevant QE day for an employee and/or they fail to comply with the choice of fund requirements and incur a choice loading amount.

The SGC applicable to an employer will be the sum of:

• the total of the employer’s individual final SG shortfalls for the QE day;
• the total of the employer’s “individual notional earnings components” (daily interest accruing until a late payment is made) for the QE day;
• a reducible administrative uplift amount for the QE day, starting at 60% of the sum of the final SG shortfalls and individual notional earnings for a QE day; and
• where the employer has not complied with the choice of fund rules, the total of the employer’s choice loadings for the QE day (capped at $1,200 per notice period).

Further changes

In addition to the above, the Payday Super Framework also includes the following relevant changes:

• Retirement of the Small Business Clearing House: the Small Business Clearing House, which currently services businesses with an aggregated annual turnover of less than $10 million or fewer than 19 employees, will retire from 1 July 2026.
• The late payment offset: the late payment offset will apply only in relation to SG contributions made before 1 July 2026.
• Maximum contribution base: this is used to set an upper limit on the minimum amount of SG contributions payable by an employer for an employee in order to avoid potential SG charge liability. This will now be an annual limit, rather than a quarterly limit.

What happens when employers fail to comply?

Administrative penalties

If SGC is not paid by an employer within 28 days of becoming payable, the ATO must issue a notice requiring the employer to make payment within a further 28 days.

Employers who fail to make payment after receiving a notice will be liable to a penalty of 25% of the outstanding amount. The penalty will rise to 50% if the employer has received a notice in the preceding 24 months. If the employer pays a portion or all of the outstanding amount before the notice expires, the penalty is reduced in proportion to the reduction.

Claims and offences under the Fair Work Act

Since 1 January 2024 the obligation on most employers to make superannuation contributions has been included in the National Employment standards of the Fair Work Act 2009 (Cth) (Fair Work Act). As a result, failure to fully comply with the Payday Super Framework could open employers to regulatory action by the Fair Work Ombudsman, claims from employees and exposure to further penalties under the Fair Work Act regime. Employers who fail to comply with the Payday Super Framework also risk reputational damage and union intervention.   

Employers who intentionally fail to fully pay an employee’s superannuation contributions on QE day also risk committing the criminal offence of wage theft under the Fair Work Act, which commenced on 1 January 2025.

ATO compliance guidance

The ATO’s proposed compliance approach for the first year of the operation of the Payday Super Framework is set out in its draft practical compliance guideline PCG 2025/D5 (Guideline).

The Guideline suggests that the ATO will approach compliance by applying a tiered risk approach, with areas of high risk expressly including employers who have failed to pay the minimum amount of superannuation contributions for their employees.

Helpfully, the Guideline includes the following information:

While the information in the Guideline is helpful, it is only designed to describe the ATO’s compliance approach until 30 June 2027. As the Payday Super Framework will have been in operation for almost a year when the Guideline expires, employers can expect the ATO to pursue a more aggressive compliance approach from 1 July 2027.

How can employers best prepare?

Employers can best prepare for the commencement of the Payday Super Framework by:

• evaluating how the changes will apply to their business and what administrative processes may need to change;
• conducting health checks on payroll systems and employee data in payroll systems and upgrading where required, to minimise the chances of the 7-business day timeframe being missed;
• if an employer uses a superannuation clearing house to distribute super to the various employee super funds, checking that the clearing house can distribute the superannuation contributions to the superannuation funds within the 7-business day timeframe;
• considering whether there will be any cashflow consequences arising for the business as a result of the changes and plan accordingly;
• communicating these changes and conducting targeted training sessions relevant to the changes with People & Culture, compliance, in-house legal and payroll employees;
• reviewing governance mechanisms and internal payroll policies to ensure SG contribution issues can be identified and resolved in a timely manner; and
• reviewing record-keeping practices to ensure that the necessary documentation is available for each employee, including forms relating to their choice of superfund.

Please reach out to your usual employment or superannuation contact if you need assistance with those preparations.

With thanks to Elizabeth Cavdarovski, Kai-Chen Lamb and Michael Tan for their contributions to this article.