Employers to pay super at same time as wages
• Super,
Employers may need to start paying employee super guarantee contributions at the same time as wages if a recent Federal Government announcement becomes law. It is estimated that around $3.4 billion worth of super went unpaid in the 2019–2020 income year, which disproportionately affected employees in casual, part-time or lower-wage sectors. The government hopes that the simple payday super change will make it easier for employees to keep track of their super payments, and also enable businesses to make payroll management smoother.
The government has announced that from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages (ie payday super). The three-year lead time is to give businesses, super funds, payroll providers and other parts of the superannuation system sufficient time to prepare for the change.
According to ATO estimates, in 2019–2020, around $3.4 billion worth of super went unpaid. While the onus to chase up unpaid super currently lies with the employee, this is made all the more difficult by the employer only having to show the amount of super they are liable to pay, not the actual amount paid. Currently, employers are only required to pay super for eligible employees on a quarterly basis, meaning that many employees realise far too late that they have not been paid the correct amount of super. The ATO notes that it will generally not pursue unpaid super enquiries where the complaint is for a period that ended over five years ago.
Once an employee notices that they have not been paid the correct amount of super, recovery can be an onerous process of providing relevant evidence to initiate an investigation with either the ATO or the Fair Work Ombudsman. As evidenced by the amount of estimated unpaid super each year, many unscrupulous business owners will have either abandoned or liquidated the business by this point, leaving employees with nothing.
While some eligible employees will be able to claim unpaid wages and annual leave under the Fair Entitlements Guarantee, super guarantee contributions cannot be claimed, leaving employees, particularly those in casual, part-time or lower-wage sectors, worse off in retirement. The government hopes that the simple payday super change will make it easier for employees to keep track of their super payments, making it harder for disreputable employers to exploit this loophole.
Treasurer Jim Chalmers MP has noted that more frequent super payments will make employers’ payroll management smoother with fewer liabilities building up on their books, while also benefiting employees. It is projected that a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000 or 1.5% better off at retirement just with this small change.
To complement the payday super measure, the government has also announced that the ATO will receive additional resourcing to help detect unpaid super payments earlier. New enhanced targets will also be set for the ATO for the recovery of super payments. Jointly, Federal Treasury and the ATO will commence consultation on these changes in the second half of 2023.
It should be noted that legislation related to these measures has not yet been released, let alone passed Parliament. Therefore, these measures are not yet law, but given the broad political support in wake of the announcements, it is likely that these proposals will be introduced as soon as various consultation concludes.
Key considerations for employers and employees
Requiring employers to pay their employees’ superannuation guarantee entitlements on payday will be a significant change from the current requirements for employers.
How will payday super affect employees?
There are considerable employee benefits to having more frequent super guarantee payments, such as:
- Improvement in retirement incomes – there is additional investment income-earning opportunity within the superannuation fund.
- Increased safeguards from underpayment or non-payment of super – prompt payment by employers allows employees to easily
monitor their super guarantee contributions, minimising the risk that the entitlements are not paid at all. According to the government, payday super will be of particular benefit to those in lower paid, casual and insecure employment who are more susceptible to lose out on their super benefits when super is paid less frequently. In this category, women are overrepresented.
How will payday super affect employers?
While the benefits to the employee are clear, there are also key considerations about the changes for employers:
- Investing in automation – increased payment frequency requires more payroll hours, particularly for businesses with weekly or fortnightly payrolls. Employers who are still completing super reporting manually will need to invest in automation and take advantage of the existing digitisation now available for fully integrated super stream reporting in order to effectively deal with the administrative demands of payday super.
- Management of cash flows – employers will need to carefully plan their cash flows, as super guarantee payments would have to be made on payday rather than having an option to defer the payments until the quarterly due dates.
- Improving processes for new employees – employers will need to review and tighten their onboarding processes since the increased payment frequency may significantly reduce the time in which new employees must provide their superannuation fund details, as well as the need for employers to request their stapled fund details. This reduced time may result in late super guarantee payments.
- Returned super – super guarantee contributions refunded to employers due to inaccurate information may not become known to the employer until several days or weeks after the payment date. Increased payment frequency may result in a higher volume of returned contributions to reprocess, resulting in late super guarantee payments.
- Out-of-cycle pays – employers will need to re-assess their existing out-of-cycle pay policies, as payday super compliance may create additional administrative work.
- Increased compliance cost – under the current rules, employers that fail to make a super guarantee payment by the due date must pay the superannuation guarantee charge (SGC), which includes interest charges, administrative costs, and the loss of income tax deductibility for the contribution. While it is unclear whether the regulations around SGC will be affected as a result of payday super, the increased frequency of super guarantee payments will make employers susceptible to incurring SGC.
What’s next?
Treasury and the ATO will consult closely with industry and stakeholders on these changes in the second half of 2023.
The final design will be considered as part of the 2024–2025 Federal Budget. There is clearly some lead time for employers concerning this major change and they should carefully monitor the consultation process.