Payday Super Bill and PCG released
The Bill to introduce Payday Super has been released. The start date remains 1 July 2026.
Some welcome modifications have been made:·
Rather than 7 calendar days, employers will have 7 business days from payday to ensure contributions are able to be allocated.
There is some leeway to allow time for the fund to make the allocation. The employer won’t be penalised if the actual allocation goes beyond 7 business days from payday, unless the contribution is rejected i.e. it was not allocable when made.
The extension for new employees will be for 20 calendar days and cover all pay events falling within that initial period.·
An extension to 20 calendar days will also apply when an employee changes super fund.
The ATO will have discretion to prescribe other exceptional circumstances such as natural disasters or IT outages, to enable extensions.
A draft Practical Compliance Guideline (PCG) has been released to outline the ATO’s approach to the first 12 months of operation. It appears that this is the practical mechanism to enable a transition period, as opposed to blanket extensions for commencing the regime in the way that was allowed in the transition to Single Touch Payroll.
According to the draft PCG, the ATO will not take compliance action in the first 12 months where employers make reasonable attempts to comply, even if this results in some contributions being late. Employers who continue to make contributions on a quarterly basis but otherwise comply will be classified as medium risk, which may trigger investigation, but will be prioritised below the high risk category, which involves actual shortfalls on a quarterly basis. This framework only applies for the first 12 months i.e. to 30 June 2027.
Key mechanisms that remain unchanged from the exposure draft
The new regime will distinguish between payments made in the “usual period” (within 7 business days) and the “late period” (before an SG assessment is made by the Commissioner).
Out of cycle payments including bonuses and back pay will be allowed to align with the next ordinary payday.
The shift from a 10% simple interest rate to compound interest at GIC rates could be very costly for employers (and potentially beneficial for employees). A simple example of this is that at the current GIC rate (11.42%), a shortfall outstanding for 10 years would result in interest of an equal amount (i.e. a $1,000 shortfall would incur $1,000 of interest). This would double with the compound GIC rate (approx. $2,000 of interest).
The administration charge will be proportional to the shortfall and much higher if a voluntary disclosure isn’t made, at the base rate of 60% of the shortfall and interest. The only scenario for no admin charge is for a voluntary disclosure within 30 days of payday.
Concepts such as Ordinary Time Earnings (OTE), payments wholly or principally for labour and exemption certificates remain the same.
“Salary and wages” is no longer a significant concept, with SGC being calculated on OTE, not the extended base.
There are some small technical changes that are welcome such as aligning the maximum contribution base with the concessional contributions cap and removing the interaction of salary and wages.
What to do next
It is now less than 9 months until the new system applies. It is estimated that 88% of employers are currently not contributing super in a time frame that would comply with the new provisions.
Managing the transition should involve moving to the new regime in a considered way, which may mean early adoption to provide additional time to identify and address any pitfalls in processes and execution.
Boards and C-suites must be aware of the impact to plan for these changes with good governance and oversight.
Practical steps for payroll managers and those with governance of payroll to consider include payroll configuration reviews, deep testing of the timeliness of existing contributions and critical review of the underlying processes, and setting up safety net processes to enable ongoing review and validation. Reviewing technical risk areas in relation to contractors and how OTE is determined remains relevant.