Payday Super Reform Explained: What Businesses Need to Know Before 1 July 2026

0:00
You're listening to Explain That by Velocity Legal, the podcast that keeps business owners and professional advisers ahead of the curve in an ever-changing legal landscape.

From 1 July 2026, Payday Super is set to fundamentally change the superannuation landscape.

0:18
While aspects of the regime are now clear, there still remains significant uncertainty about how the reforms will actually operate in practice.

In this episode, I'm joined by Nick Viergever and Ani Tuna to discuss what we know, what remains unclear, and the practical steps businesses and advisers should be considering to take in preparation for the implementation of the Payday Super rules.

0:40
Firstly, Nick and Ani, welcome.

Thank you.

Well, Ani, I'll start with you. Payday Super. It's been a long time coming, hasn't it?

It has been a long time coming. It probably feels almost like old news.

It was announced by the government an entire three years ago, or three years before implementation, so back in May of 2023, with the proposed start date of 1 July 2026.

1:04
So that hasn't changed, although there was quite a bit of lobbying done in recent times to have that delayed.

It's effectively taken almost that entire time, so almost three years for the law to pass, and for us to be even now somewhat uncertain.

1:21
So yeah, May 2023 was when the idea was announced. I think it was 18 months before Treasury even put together what they referred to as a design or implementation paper.

It was then five months after that. So I think it was now May 2025 before we received an exposure draft.

1:39
So May 2025, with a 1 July 2026 start date. So not a lot of time there.

It wasn't until recently, actually, it wasn't until October of 2025 that the bill was introduced and then passed.

1:58
So it took effectively two and a half years before we actually had legislation, and now we're actually in the midst of that.

So we're trying to understand what that means with a very short runway to 1 July 2026.

As Nick and I will often talk, it's not just about bringing forward the obligation to make super payment obligations or contributions.

2:22
I should say it is a fundamental change in how businesses will have to think about paying their super obligations.

So it's not just, oh yes, I just have to pay on payday. It is pretty much an overhaul of many of the concepts, and hopefully we can help talk through some of them today.

2:39
Yeah. Well, I guess that's perhaps, given that it is such a fundamental overhaul, why it's perhaps taken three years. Probably a good idea having a big runway.

Although, as you said, draft legislation was only a bit over 12 months ago and passed later than that.

2:55
So we're now in the midst of things.

Nick, can you explain at a higher level how this is changing from the system that we've been dealing with to date around superannuation?

Yes. So currently employers have quarterly liabilities for superannuation liability that will arise for their employees, and they would have a due date of 28 days after the end of that quarter.

3:20
So for instance, the most recent quarter, which was the March quarter, they would have had until the 28th of April to pay the liabilities of their employees in full.

Now it's changed to be seven business days after each pay run.

So we're seeing a bit of a shift here between employers who are paying on different pay cycles.

3:40
So if someone's paying weekly, they're going to be realising that liability a lot sooner than someone who would be paying fortnightly.

So the shift is dramatic in the sense that it is bringing that liability forward a lot quicker.

Well, that is a fundamental change.

3:56
I guess, under the existing system with your example, let's say an employee works in January, and then essentially potentially they're not getting paid that superannuation amount until April or late April.

4:13
Yeah. And that's the intent of the policy, to help that. The intent of superannuation is to assist employees with their retirement.

And the intent of this policy was to ensure that these employees are getting the most out of their superannuation funds as they can and have that capital growth whilst they're getting paid, as opposed to having this three, almost four months, lull in between your payment of earnings as opposed to a contribution to your superannuation fund.

4:43
Yeah. And I suppose from the superannuation fund's perspective, because they have a big presence, a lot of trillions of dollars under management, that they're getting their funds earlier as well.

So I think they're probably a winner from this as well.

5:01
But the observation I wanted to make was in relation to unpaid superannuation.

It seems that with these changes, the runway about unpaid super racking up seems to be, Ani, would you say that seems to be far less under this regime?

5:19
Yeah. And we can talk about how the administrative penalties work, but the regime really is about getting the money into super sooner, but also making sure that if the money isn't in super when it needs to be, it's not such a long runway for the ATO then to determine that super hasn't been paid.

5:41
And one of the mechanisms that they have, and they've been quite aggressive with in recent times, is issuing Director Penalty Notices for super.

So layering on top of all of this is not just, as Nick said, bringing forward cash payments for businesses, so the cash flow, but there's also a significant risk because super guarantee contributions and obligations are subject to director penalties.

6:09
So the risk is huge in that you can be held personally liable as a director.

Now, if you're making payments and required to make payments seven days after every pay, you're no longer getting that runway, as you say, which is almost sometimes four months.

Then you've got the time it takes for the ATO to discover that there's been a late payment.

6:27
It can be years before that is discovered and rectified.

Whereas under the current system, not only is it easier and quicker for the ATO to find that, and we've seen that with the Single Touch Payroll, it makes it easier for them to data match, but it's going to be more frequent.

6:44
So I think the messaging, and we'll talk a little bit about how the regime works and the administrative penalties, but everything is encouraging the employers to, unlike the previous system where they were a little bit, you know, they paid late, but they didn't bother with the SGC statements because, you know, I paid, I made the payment eventually, why do I need to bother with the statement now?

7:04
Everything is pushing employers to take action immediately when a payment is late, and that is by way of making now what they're referring to as voluntary disclosure statements.

So they're going to be in an approved form, I believe. So it may look a little bit different to the regular voluntary disclosure statements, but being pushed to do that more frequently.

7:25
So you're going to be caught out faster.

Not sure how that's going to play out with businesses that are already struggling. We might see some of those businesses struggle a little bit faster.

But yeah, we can talk through some of that administrative stuff.

But even then, as Nick and I worked through some of these, there are some strange outcomes where, due to some of the ordering rules, we're actually going to see businesses that are doing the right thing in July.

7:48
So actually making payments on time, possibly categorised as being late because of the way in which the transition from one system to the other is going.

So that's probably one of the key points we probably want to make this early in the piece.

Yeah, in the lead-up to June and July, making sure that those businesses are prepared for that transition.

8:08
And then as we get into July, then we will probably start talking about how to manage going forward.

It's a good point, Ani. Something I've heard as well is that essentially if you're a business and you go into July, depending on your exact situation, you may be having your July super payments for the previous three months.

8:28
And then also you're in the Payday Super system.

So Nick, I guess that July is probably going to be a little bit of a cash flow crunch for many smaller businesses, correct?

Yeah. And this wasn't something that wasn't foreshadowed in the lead-up to the transition to Payday Super.

8:46
It was always clear that you should be starting to put processes in at the start of this year and try and get your employees' pay runs, the superannuation contributions, to be aligned with the pay runs in the lead-up, as opposed to it hitting 1 July and you're like, oh, we have a whole quarter plus the current ones due now.

9:04
How are we going to manage this?

And the magnitude of the non-compliance in the ATO's data in the 2023 financial year, estimated it was $6.2 billion, which is currently shortfall outstanding.

So yeah, the intent of the policy is definitely to realise that sooner and hopefully get employees their contributions a lot more on time.

9:28
Ani, perhaps an example would be helpful just of that July period, which is coming up soon, about how does that actually look in practice?

Yeah, there's a couple of different angles or bits of it that we need to consider.

But let's take an employer who's now sitting here as they approach June and they're probably thinking, if they're planning well, which hopefully some of them are doing or many of them are doing, they're probably thinking, okay, so I have an obligation for my June quarter, which is due on the 28th of July.

9:58
So you can do one of two things.

You could bring that forward. So you could pay that entire obligation prior to the due date in July, and I'll explain why you might want to do that in a moment.

Or you can continue with that due date. So you can do as you normally would have.

10:14
You can make that June quarter payment at 28th of July.

Now, there are two reasons why this is an important discussion. One is to do with the ordering of those payments, and the second is to do with how that payment and when you make that is going to potentially impact the employee down the road.

10:32
So maybe we can start with talking about the ordering of the allocation of that payment, and then we can talk about the impact on the employee.

So I might start with one example, and I'll get Nick to chime in with some variations of that.

So let's say you decide to do what you normally would have.

So you get to 30 June and you think, look, that's okay, we've got until 28th of July.

10:50
So I won't make my June quarter payment, or I'll make most of it, assuming some of it has already been made.

Maybe I'll make my June quarter payment on the 28th of July as I normally would.

The ordering rules say that from 1 July through the 28th of July.

11:07
So that funny little crossover period where Payday Super has started, but your June quarter is not yet due yet.

So that funny little window. In that little window, the allocations of the payment made by the employer are done based on first allocating payment to the June quarter, assuming that it's not fully paid, and then to your Payday Super payments.

11:33
Now, if I go to that example I just pointed out where I said the employer is going to make their June quarter on the 28th of July, they might have a payday, let's say middle of the month.

So that's their Payday Super start date.

So they'll have a middle of July payday, and let's say that payment.

11:52
So seven business days after that pay cycle turns out to be the 22nd of July.

That's the date that under Payday Super they're required to make their payment in respect of that allocation of pay, good qualifying earnings day.

So they would go and make their payment on the 22nd of July as required in respect of that Payday Super.

12:13
Then they would go on the 28th of July and make their June quarter payment.

All of that has been done on time.

Yes.

Problem is though, the first allocation, as the rules, because of the ordering, that first allocation made on the 22nd of July, that gets allocated to their June quarter.

12:31
That's cool. So now the June quarter, assume the amounts are equal, the June quarter's been paid off.

So that's not a problem. But they're not making their June quarter payment until the 28th of July, which is six days, maybe not six business days, you'd have to work that out.

12:47
But it's actually six days after the due date, which is the 22nd of July.

Yeah.

So inadvertently they've done the right thing. They've made their payments when they should have. So on the 22nd of July and the 28th of July, both are technically on time, but because of the ordering, that Payday Super amount won't get allocated when it needs to.

13:05
So we talked about the ordering, that essentially from payments made after 30 June, then the ordering rule is that the payment has to first be allocated to the current regime rather than the new regime.

And there can be some problems caused depending on your exact situation.

13:23
You mentioned another point around the employee issue, which I think has got to do with contributions and what contribution is for which year.

Can you explain what that issue is?

Yeah, sure. And that's where some of the uncertainty lies.

So currently the government has announced that in that scenario where a business decides to make their June quarter payment in the following year, so when it would normally be due, plus then they'd have to make their entire year of Payday Super payments.

13:50
In that example, for a really high income earner, that could result in them exceeding their contributions cap.

The government has announced that they are going to legislate so that for that particular year, so the 2027 year, there will be an allowance so that excess contributions that are exceeded due to these employer contributions will be allowed, or there'll be some mechanism so that those high income earners aren't penalised.

14:18
So if the employer's FY26 contribution goes in FY27, and then under Payday Super, the full amount goes in as well, they're not essentially going to get penalised.

That's right, that's the announcement. Haven't seen the law yet.

However, they have not made any announcement or suggestion that they're going to apply that same leniency for 2026.

14:37
So for the employer who's deciding, and you talked about cash flow crunch and we talked about that earlier, for the employer who's bringing forward their June quarter, so they're paying it prior to 30 June because of cash flow and other reasons.

In that example, that employee and a high income employee could also be exceeding their cap because they'd have potentially, unless they had a practice of bringing forward the June quarter.

14:59
The FY25 has been pushed into FY26, and then if they put the FY26 in.

That's right.

And so for those employers there is a problem because the government has not announced so far a leniency there. So we'll wait to see.

There is a bit of lobbying on that, but it's an uncertainty, and getting this close to 30 June, it is a significant uncertainty.

15:19
Well, I think it sounds like there are a lot of transitional issues, and it's going to be a very uncertain time for all businesses getting used to this new system.

Nick, I wanted to move on to talking about, I guess, one of the positives of this new system.

Under the current law, the penalties were massive on super non-compliance, and the ATO was somewhat limited in what they can do.

15:50
My understanding is the new system is a lot better for penalties. Would you say that's accurate?

I'm always conscious to not say better on anything, but I would say it's definitely different. There are some structural changes, and yeah, on its face level, the percentage of penalties is capped at a much lower rate.

16:09
So in the current system, the maximum penalty that could be imposed was 200%. This is for the really aggressive non-compliance. It's kind of those phoenix arrangement kinds of.

So you fail to pay $100 of super and your penalty is $200 on top of having to pay the $100.

16:28
So there's now $300.

Plus interest to the employee as well.

So they've recognised that as being maybe too aggressive and it's disproportionate to the amount, because you could have an example where you just paid one day late and then you could get hit with a massive penalty, which just doesn't feel like the intent of the policy.

16:46
If you contrast that to what is being implemented now with the Payday Super regime, it's a maximum of 60%, which would be based on two components.

So you have an amount for your previous compliance, which is capped at 20%. So if the ATO has issued in the past 24 months before the non-compliance.

17:05
If they've issued the default assessment on you, then that's a 20% administrative uplift.

Then there's an additional 40%, maximum of 40%, which could be if it was the ATO that issued that assessment.

So you could have an example of an employer who makes a voluntary disclosure within, I think it's 28 days after the end of the qualifying earnings day.

17:26
And that would get them a 0% percentage on that second component.

And if they haven't had ATO-initiated compliance action for their superannuation liability within the past 24 months, then there would still be another 0% there.

So there wouldn't be any administrative uplift.

0% sounds a lot better to me than 200%, but yeah.

17:48
So 60 is the magic number. 40 and 20% are the components of that.

Yeah. And again, it's recognising it's very similar to how the current system operates in the sense that the maximum was 200%, but there were remissions provided based on your compliance history and your intent to engage and if you were the one who disclosed the non-compliance to the ATO.

18:10
So it's recognising that, and it is pretty similar to that, except I think it is a bit more lenient in the sense, but there's also less discretionary elements. It's very objective based.

It's did this happen or did this not happen?

Whereas in the current system it was, were there exceptional circumstances that happened just to that employer, were there some health issues or some issues with directorship, then the Commissioner had a discretion to remit some additional of those penalties.

18:38
Yeah, yeah. Well, to the point Ani made earlier around information coming a lot more real time, I guess hopefully we won't have these situations which we've all dealt with over the last 10 plus years of either massive non-compliance or rolling issues that every single one is late and all the nightmares that can bring.

19:01
Ani, I wanted to move to a different topic, and I wanted to ask about contractors.

How are contractors treated?

Yeah, I think this distinction between contractors and employees is still as much now a relevant topic as always. They're treated the same way.

19:19
So there is a seven business day obligation for contractors in the same way as employees. It's based on their date of payment. So you have seven days to pay.

Pay the super for your contractors as well?

Yeah, yeah.

19:35
But I guess there's still that uncertainty or issue about whether you need to pay contractors super in the first place.

100%. It'd be nice if that was waived in all of this.

That's probably where we see some difficulty, where people think that they're doing the right thing, but they're caught out by the fact that their contractors are, for super purposes, considered employees.

19:59
So that is certainly something that is still front of mind, or should be front of mind.

Nick, I wanted to turn to the role of the clearing houses.

Firstly, just for those that aren't familiar with this space, what is a clearing house? It sounds like a fancy word, but what actually is a clearing house?

20:14
Yeah, a clearing house is a third party which essentially you'll make one bulk payment to of the entire superannuation liability for all of your employees for a period, and they will break that payment up and then attribute it to that employee's superannuation fund directly.

20:35
This would remove a lot of that administrative burden that an employer would face by having to make separate payments to every single employee.

One payment out of the employer to the clearing house. The clearing house then sorts out where they go.

Yeah.

20:52
And there's obviously processing times for that. So there's an extra payment that's being made. There's an extra barrier there.

Currently superannuation clearing houses generally advise for about a seven-day processing time, so up to seven days for them to process the payment into the employee's account.

21:12
Now, the issue with that is that payments have to be allocated and available for use in the fund within seven business days for it to be a compliant payment within the regime.

So if you have an employee that pays on the same day that they pay their employees, they pay that to the superannuation clearing house, and they take seven days to process that payment.

21:31
You're late. Even though you paid on time, fully intended. You didn't derive any benefit from withholding that payment, but the superannuation clearing house processed that too long and you're the one who's non-compliant.

21:46
And that's a misconception that's still out there, that it's about the date that the employee's fund receives the money, not the date that it leaves the employer's bank account, which I guess is why it's been called Payday Super.

But it's actually within seven days.

22:02
But you probably would want to run it as part of your payroll anyway. I guess best practice, right?

Yeah. I think for sure you don't really want to have any. You want to identify any issues as they arise, and the earlier that you can pinpoint those, the better.

The slight nuance with that is that previously there was an ATO-approved clearing house.

22:23
So this was for small businesses with less than 20 employees, or alternatively there was a turnover threshold which would allow you to be eligible to use this clearing house.

This clearing house allowed you to treat payments as made on time at the date that you pay it to the clearing house.

22:41
So that removed that processing buffer.

Now, this was a concession that was provided to these small businesses because they realised that the limitation there for these directors to manage all these processes and the compliance of these payments was just a barrier, and they wanted to remove that.

23:01
Unfortunately, that's closing with the transition to Payday Super, which was a surprise to a lot of practitioners because it was a great initiative by the ATO.

It seems like a reasonable good system. Why dismantle it?

Yeah. The ATO's view is that it's due to a lack of uptake in it.

23:19
Yeah, I would argue that maybe the lack of uptake is because this wasn't front of mind for a lot of employers.

Maybe there should have been better communications around the availability of this clearing house.

But with that closing, it's going to be a lot of these small businesses who have never processed through a commercial clearing house before, or processed those payments directly themselves to their employees.

23:40
So it's going to be a real kind of teething issue for them getting on board with a new system, but then also entirely new processes which they're not at all familiar with.

I think it'll be interesting to see the volume.

One comment that I've heard is that apparently it's a fourfold increase in the amount of actual transactions that are running through the superannuation, like the back end of the actual system.

24:03
Because there's so many more payments that are going to be coming as part of this. And I think everyone's crossing their fingers and holding their breath that that won't cause any issue.

There's also a critical action point on the closing of the clearing houses as well.

24:19
Do you want to talk to that, Nick?

So I think it's around making sure that those people that are on that system transition properly.

Yeah. So with any tax compliance, burden of proof is on the taxpayer.

So if the ATO ever turns around and says, hey, we think that you didn't pay superannuation on time, the employer would have to demonstrate and prove that they did.

With the close of the clearing house, that system won't actually be able to be accessed after 30 June.

24:45
So that means any of the previous payments that you've made retrospectively, you won't have any evidence of that unless you download that prior to 30 June.

So download that information prior to 30 June, if it's the last thing you do before you go to your 30 June party, it's to download the info from the ATO clearing house.

25:04
Because you may not.

Yeah, you won't. As we know now, lose it.

You won't. Yeah, you'll lose it.

And as Nick says, that can be problematic.

Any final topic as part of this? Although we could talk all day about Payday Super.

My understanding is the SGC statement as a concept is going entirely.

25:24
That might be correct, but that's a layman explanation of it, and perhaps you'll give me a better explanation of how it's going to work now.

I think some of us are a bit wishful that the SGC statement is gone forever.

25:40
Not quite. And I say that because, yes, going forward in relation to Payday Super, as Nick went through the administrative charges and things like that, it's about voluntary disclosures after 1 July.

But in respect to the older system, SGC statements are still relevant there.

25:57
And the reason why that is actually going to be probably more important than ever is that when I talked about allocation and ordering after 1 July, payments won't be allocated after 1 July.

The only payments allocated will be to the June quarter up until the 28th of July.

26:16
After that, not only will there be no payments allocated to the June quarter, there'll be no payments allocated to any quarters pre-Payday Super.

So what that means is that when 1 July ticks over, payments are no longer allocated to March 2026 and earlier, and then from 28 July, nothing to the June quarter.

26:36
So the only way to fix those late payments or unpaid payments, the only way to fix those will be to make an SGC statement.

And that's because any contribution you make, even if you want to make overs and aboves on a random day to fix up and clear out because maybe an employee's leaving or something and you want to clear them, that won't get allocated to the older system because this idea of a late payment offset, which was what allowed you to allocate it to the old system, that's gone.

27:03
So the critical thing here is the SGC statements are not gone forever.

And in fact, they're probably more important than ever post 1 July, because the only way to fix those earlier problems after the 28th of July.

And I know there's a lot of dates I've thrown out there, but those payments won't be able to be fixed.

27:23
They'll continue to stay unpaid post 1 July.

So if I'm an employer and perhaps considering reviewing that right now, and I guess before that system shuts entirely, making sure I'm compliant for those previous periods where we're drawing the line in the sand.

27:41
Because otherwise going forward, there's only one way to fix it, which is a costly way with a statement, and there's a notional 200% penalty that might then come down.

But yeah, I think it's a window of opportunity. Would you say?

27:56
Yeah, I don't think it's uncommon that an employer would try to retrospectively pay that liability well after that due date.

So taking any example, if on the 29th of July they say, oops, we missed our June quarter payments, they go and pay that.

28:14
There's no ability to claim the late payment offset for that June quarter.

So you're going to have the June quarter outstanding. You've made a prepayment into the new regime, which if you didn't realise, you're never going to stop paying an employee to utilise that rolling balance, and then you only have 12 months to claim that rolling balance.

28:31
So you could get in a period where you have liability for the June quarter and overpayment to the employee under the new regime.

That 12 months lapses, the employee has got double benefit, and you're worse off because you have an outstanding liability that you need to do an SGC statement for, and then maybe get 200% penalties on that.

28:52
Well, even though we've said it was a three-year start, and there's lots of issues that have been addressed, I think this chat has been clear that there are still unresolved issues here.

29:08
A lot of businesses are going to have a big transition period depending on exactly how they've operated, what they've done with super.

And I think if businesses or advisers have issues, definitely reach out to either of yourselves for assistance.

29:25
Yep, it's interesting. We're mid-May now, or towards the end of May, and there's about 39 business days to Payday Super.

And I'm sure we'll have a chat to you after July to see where the dust has settled, and hopefully some of the uncertainty becomes certain.

But hopefully there's not new problems that we discover along the way.

29:42
Multi-headed hydra.

Yeah. Well, thanks again, Ani and Nick.

And I encourage anyone to reach out to either Ani or Nick with SG questions.

Thanks, Andrew.