Payday Super regime - Policy Design released

The Treasury has released a fact sheet on 18 September 2024 regarding the draft legislative policy design for the new Payday Super regime due to commence on 1 July 2026.

In October 2023, the Treasury released a consultation paper on Securing Australians’ Superannuation (Payday Super) and BDO prepared a submission response. The consultation paper was based on the announcement in the 2023-24 Federal Budget that employers will be required to make superannuation guarantee (SG) contributions on the same day they pay salary and wages rather than quarterly.

The proposed changes

The important proposed policy changes are as follows:

  1. Seven day ‘due date’ applies: Employers will broadly be required to make SG contributions so that they are received in an employee’s super account within seven calendar days of payday (otherwise the employer will be liable for the SG charge).
  2. Exceptions to due date rule: The due date will be deferred until after the first two weeks of employment for new employees, and small and irregular payments outside the ordinary pay cycle would not be considered a ‘payday’ until the next regular payday occurs.
  3. Revised interest component: The interest component of the SG charge will be revised to be based on the general interest charge on a compounding basis rather than 10 per cent per annum rate used currently.
  4. Revised administration component: The administration component of the SG charge will be changed to a new regime of an uplift of up to 60 per cent of the SG shortfall component rather than $20 per employee per quarter that applies currently.
  5. SG charge will be tax deductible: The SG charge will be tax deductible, currently non-deductible.
  6. Revised Penalties: Additional penalties may apply of up to 50 per cent of the SG charge, currently the ‘Part 7’ penalties apply up to 200 per cent of the SG charge.
  7. ATO clearing house SBSCH to cease: The Australian Taxation Office (ATO) clearing house to cease from 1 July 2026, being the Small Business Superannuation Clearing House (SBSCH).
  8. Late contributions applied to earliest payday: Late contributions will automatically count towards the earliest possible payday which still has an outstanding SG shortfall.
  9. Super funds to allocate within three days: Super funds will be required to allocate or return contributions within three business days, currently 20 days.
  10. Timing of legislation late 2024 at earliest: The legislative design will occur throughout the rest of 2024, meaning that legislation is unlikely to be released until late 2024 or early 2025 at the earliest.
  11. Changes possible to the policy design: Consultation of the policy design will now take place, which may result in changes to the policy design set out in this article.

BDO Comments

BDO welcomes the long-awaited release of the proposed framework for the new Payday Super regime. Progress has been made which will allow employers to gain more informed insights to be prepared for the upcoming changes.

However more work is required to ensure that unintended consequences and practical difficulties do not arise from this proposed framework.

For example, the seven-day due date rule applies to calendar days, which will reduce the turnaround period significantly once take into account weekends, and also public holidays. It is our view that employers should only be required to make the payment within the seven calendar days, and not be held accountable for the payment to reach the employee’s super account. Where circumstances arise out of the employer’s control after the payment has been made, it is the employer that is liable to the SG charge. It is disappointing that employers will remain responsible for circumstances they cannot control under this proposed policy design framework. 

Also, the three business day period for super funds to allocate or return contributions is a significant reduction from the current 20 day period, and raises the question as to what penalty will be levied and who is liable where the three day period is breached. For example, would the entity liable for the penalty be the super fund or the employer, and will the penalty be in the form of the SG charge?

There is uncertainty regarding the revised administration component regarding how this will be applied and there is risk that a significant cost could result for employers from this component.

Further, the policy changes rely on technologies that are not cost effective for small and medium sized entities, and it would require significant work to develop the software capabilities for the proposed regime requiring significant period of time to address

It is disappointing that the Treasury has proposed cessation of the SBSCH. The SBSCH provides a valuable no-cost solution to many employers, especially small business.

In relation to the proposed start date for the new regime of 1 July 2026, it is our view that this is an unrealistic target to achieve, certainly in order to ensure we have a robust efficient and effective system in place. We suggest that a staged approach to the implementation of the Payday super regime is required, for example, larger employers first and a gradual introduction to remaining employers over several years, and extension systems in place for software providers.

Need help?

Reach out to a BDO adviser from our tax services team if you would like further information regarding the proposed changes or how our team of experts can help you.