Navigating the new era: Same-day superannuation contributions

In a move aimed at streamlining Australia's superannuation system and ensuring timely financial security for employees, a key focus of the 2023-24 Federal Budget was the development of Superannuation Guarantee (SG) payments. Commencing 1 July 2026, employers are required to remit their employees' SG entitlements on the same day as their salary and wage payments, departing from the current quarterly practice. This development marks a crucial shift in how businesses manage their superannuation obligations.

Treasury has recently announced a new consultation paper seeking feedback on its plan to require employers to pay super at the same time as salary and wages. Submissions from relevant stakeholders on the proposed policy and legislative design are encouraged to provide input on the consultation paper by Friday, 3 November 2023. The shift to same-day superannuation contributions results from extensive research and consultation conducted by the Australian Government. The goal is to enhance the efficiency and effectiveness of the superannuation system, ultimately benefiting both employers and employees. Increased frequency of SG payment will improve retirement outcomes, both by these concessional contributions being in the system sooner and by employees' greater visibility over their SG contributions. By aligning SG payments with regular payroll cycles, the initiative aims to ensure employees receive their superannuation entitlements in a more timely and consistent manner and will provide an enhancement for the regulators such as the Australian Taxation Office (ATO) to not only enforce compliance but also identify any instances of non-compliance.

What will these changes mean?

• Ensuring compliance and avoidance of penalties

Compliance with superannuation is of paramount importance for all employers. Failing to meet SG obligations in a timely manner can result in increased penalties imposed by the ATO. By requiring employers to make SG payments concurrently with salary and wages, the ATO gains a powerful tool to better target and recover unpaid superannuation. This real-time data streamlines the ATO’s ability to identify non-compliance and to take swift, targeted action to rectify it. For the ATO, this shift signifies a major advancement in their capacity to monitor and enforce SG compliance more effectively and regularly.

• Simplified payroll process for employers

Integrating SG contributions with regular payroll cycles simplifies the administrative burden on businesses. Integrating SG contributions with regular payroll cycles for employers translates to a more seamless and efficient process. This streamlined approach not only eases the administrative burden on employers but also minimises the potential for administrative oversights or miscalculations.

• Improved employee satisfaction

Timely superannuation payments demonstrate a commitment to the financial well-being of employees. The introduction of same-day superannuation contributions seeks to provide unprecedented visibility into the payment of SG entitlements and ensures that employees have immediate access to information regarding superannuation contributions, fostering transparency and trust. This heightened level of transparency can assist in empowering employees to take an active role in planning for their future and instil confidence that their future savings are being managed with diligence and care.

How can employers prepare?

• Review payroll processes

With a commencement date of 1 July 2026, this provides employers, superannuation funds, payroll providers and other parts of the superannuation system with sufficient time to prepare for the change. Employers should review their payroll systems to ensure they can accommodate same-day superannuation contributions and adjust their cash flow practices. This may involve implementing new software or adjusting existing systems to facilitate seamless and timely payments.

• Enhanced record-keeping and reporting

Accurate record-keeping is paramount to ensure compliance with these changes. Employers should maintain detailed records of superannuation contributions, including dates of payment, amounts, and relevant employee details. Additional governance will need to be implemented around matters such as super choice, super stapling, and management of the remittance process (including the use of a clearing house) to ensure robust reporting mechanisms are in order to facilitate transparency and ease of audit in the event of regulatory scrutiny.

• Communication with employees

Employers should review and, if necessary, amend their employment contracts and relevant agreements to reflect the new superannuation payment timeline. Clauses related to superannuation contributions and payment schedules may need to be updated to align with the new regulatory SG payday changes.

Employers should communicate these changes to their employees to foster transparency and provide reassurance about the timely handling of their superannuation contributions. Clear communication can help alleviate any potential concerns or questions.

• Seek professional advice

As part of these changes, the ATO will receive additional resources to detect unpaid super payments early through various tools such as Single Touch Payroll and super fund data matching. In addition, the Government is expected to set enhanced recovery targets for the ATO. As such, employers should conduct regular audits of their superannuation processes and seek professional advice to ensure alignment with these forthcoming changes. These proactive measures can help identify and rectify any compliance gaps, ensuring employers navigate the transition smoothly to remain fully compliant with any new SG developments.

Other key developments

Payday super is only one of numerous recent superannuation developments, highlighting Federal Government’s focus on strengthening Australia’s superannuation system to deliver better outcomes for Australians. Other key developments include incremental SG rate increases, enhancing the choice of super fund processes, and providing greater clarity on who is an employee for superannuation purposes.

1. Changes to SG Rate for 2023 and beyond

One of the fundamental shifts in the superannuation landscape relates to the changing SG rate. The SG rate remained unchanged at 9 per cent for many years, however the first of many increases took effect from 1 July 2013, increasing by 0.25 per cent to 9.25 per cent. Over the past decade, Federal Government’s focus on ensuring greater financial security for retirees has continued with further increases to the SG rate. Most recently, the SG rate increased from 10.5 per cent to 11 per cent, effective from 1 July 2023, with two final 0.5 per cent increases expected until it reaches 12 per cent by 1 July 2025. This will impact the contributions made on behalf of employees. Employers are encouraged to stay informed of these changes to ensure compliance and effective financial planning for them and their employees.

2. Updated Superannuation Standard Choice Form

The ATO has recently revised the Superannuation Standard Choice Form, following extensive consultation with industry stakeholders. This updated form provides a standardised and simplified process for employees to choose their superannuation fund, offering an enhanced digital user experience and boasting improved readability for ease of use. Employers are encouraged to acquaint themselves with the new form to ensure they use the most current and compliant documentation.

3. Ordinary meaning of the term ‘employee’

In addition to the changes in SG contributions, it is noteworthy that the ATO is currently revising their SG rulings on the classification of employees. This initiative seeks to provide greater clarity on the criteria used to determine who is considered an employee for superannuation purposes. These revisions are anticipated to bring about important distinctions in the treatment of various employment arrangements, including for contractors and casual workers. Further updates are expected later in the year, as indicated by the ATO. Staying informed about these forthcoming changes is paramount for employers as it will directly affect how they navigate superannuation compliance and contributions in the evolving regulatory landscape.

The introduction of same-day superannuation contributions (together with the key developments detailed above) represents a positive step forward for employers and employees. This transformative shift not only streamlines financial processes but also ushers in a new era of transparency and accountability.

Employers who take a proactive stance towards superannuation governance will be better positioned to navigate the change, mitigate risks, and ensure long-term compliance with regulators. Embracing this shift will assist with financial security and reinforce trust and confidence in the superannuation system as a whole.

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If you have any questions regarding this article or would like more superannuation information, please contact a BDO employment tax specialist or your local BDO adviser.