The Payday Super Legislation: A New Era for Employer Obligations

The "Payday Super" legislation is scheduled to take effect on July 1, 2026. This new rule mandates that employers will be required to make superannuation payments to their employees on the same frequency as their pay, moving away from the current system that allows payments up to quarterly.

Heightened Cash Flow Concerns for Businesses

Adrian Hunter, a Restructure & Recovery Partner at RSM Australia, has expressed significant concerns regarding the impending changes.

"These changes could lead to working capital issues for many businesses."

Hunter noted that businesses, particularly those already facing cash flow difficulties, need to prepare now to prevent potential insolvency. He highlighted that the period leading up to March often sees an increase in business insolvencies. Businesses are already under pressure following the Christmas period, where employee entitlements may need to be paid despite slower revenue, compounded by fourth-quarter BAS payments due in late February. Hunter indicated that the Payday Super legislation will intensify cash flow pressure on small and medium-sized businesses throughout the year.

Efforts to Delay Legislation Unsuccessful

Several accounting lobby groups attempted to delay the legislation's introduction by two years to allow businesses more time to adapt. However, these efforts were unsuccessful.

Revised Superannuation Calculation Methodology

Currently, superannuation is calculated as 12 percent of ordinary time earnings (OTE). From July 1, 2026, it will be calculated as 12 percent of qualified earnings (QE).

Qualified earnings include both ordinary time earnings (OTE) and other payments such as commissions and shift penalties.

The complexity of calculating these additional payments, which are often determined after work is completed, was a point of concern raised by the accounting lobby groups.

Steep Penalties for Non-Compliance

Employers who fail to make timely superannuation contributions can face penalties exceeding 60% of the superannuation shortfall. The severity of these penalties may vary based on the employer's history of meeting their obligations.

Anticipated Outcomes and Challenges

While the legislation is anticipated to reduce the incidence of unpaid superannuation, its implementation is expected to present new challenges for businesses.