The ATO has also released Draft PCG 2025/D5 outlining its compliance approach for the first year of payday super.
From 1 July 2026, employers will need to pay superannuation guarantee (SG) contributions on payday, with contributions reaching the employee’s fund within 7 business days.
The PCG acknowledges industry concerns that employers may not have sufficient time to deploy, test and embed changes before commencement. This recognition is important, but the timeline remains tight and key difficulties raised during the consultation process remain unaddressed in the new law.
Background
The government first announced payday super in the 2023–24 Federal Budget, followed by design rules, a consultation paper and then draft legislation. The Bill now formalises these proposals and sets the framework for implementation.
The ATO’s Draft PCG 2025/D5 was released alongside the Bill and is open for consultation until 8 November 2025. It provides guidance on the ATO’s compliance approach during the first year of implementation, recognising the challenges employers face in meeting the new requirements.
Key features of the new rules
- Introduction of ’Qualifying Earnings‘ as the base on which superannuation is to be paid, essentially replicating ’ordinary time earnings’.
- Superannuation must be in employees’ accounts within 7 business days of pay day – with some exceptions, such as for new employees and out of cycle payments.
- Annual maximum contributions base instead of quarterly limits i.e. superannuation is paid on all Qualifying Earnings until the cap is reached and then stops.
- Updates to STP and SuperStream reporting to accommodate payday super and Qualifying Earnings, meaning payroll systems will need configuration changes.
- Shortfalls to match the short/late paid amount, rather than the separate calculation we have now.
- Interest on shortfalls to apply until superannuation paid, rather than when disclosure lodged.
- Changes to the manner in which penalties and general interest charge may apply or be remitted.
Key change since the draft legislation
- The main change since the draft legislation was released is that payments of superannuation must be received by employees’ funds within 7 business days of pay day, rather than the 7 calendar days originally proposed. This is a welcome change, but still a tight time frame.
Key challenges and unresolved issues
- The proposed start date of 1 July 2026 is considered aggressive, with industry bodies calling for a 12-24 month deferral to allow system readiness. Small businesses in particular, face significant cash flow and administrative challenges, with limited time to adapt to new processes.
- The seven-day payment window may be impractical for some employers, especially those using clearing houses or managing multiple pay cycles.
- Whilst funds must allocate contributions within 3 business days (down from 20), employers are still responsible where the money is not in employees’ accounts within 7 days of pay day. The fact that employers can be held accountable for action, or lack of action, outside of their control is a key concern for employers under the current legislation and it is disappointing that this has not been addressed in the new rules.
- Tracking year-to-date contributions and stopping once the maximum cap is reached can create cash flow issues, for employees and employers. This is particularly an issue where contracts are expressed as inclusive of superannuation and the employee salary packages, as there can be an impact on the take-home pay amount, and attempts to smooth this can result in advance payments of remuneration.
- Removal of the definition of an ‘approved clearing house’ creates uncertainty for businesses that rely on these services for compliance.
- Penalty remission powers remain limited, raising concerns about fairness for employers who make genuine efforts to comply.
PCG 2025/D5 – First year compliance approach
The ATO’s draft PCG sets out its proposed compliance approach for the first year (1 July 2026 to 30 June 2027) using a risk-based framework:
- Low risk: Employers making genuine efforts to comply, with timely contributions and evidence of remediation where required. The ATO will not have cause to review these employers.
- Medium risk: Employers transitioning but with some late payments or process gaps. The ATO may apply compliance resources, but will prioritise this group behind the high-risk group.
- High risk: Employers failing to make sufficient contributions or miscalculating qualifying earnings. The ATO will apply compliance resources to investigating these employers.
Moving forward
We suggest employers review their current payroll processes and ensure systems are ready for payday super by 1 July 2026.
Note that the ATO will have increased visibility of superannuation and enhanced data-matching capability, enabling a much more proactive approach to identifying late or missing contributions.
How can we help?
Grant Thornton can assist with a review of pay codes to ensure that they are configured correctly in relation to the application of superannuation guarantee. Areas where we typically see errors include:
- Allowances and whether they are expected to be fully expended.
- Annual leave loading and the nature of this payment in the specific business.
- Workers’ compensation payments not identifying whether an employee is working.
- Penalty rates incorrectly considered overtime.
Additionally, we can provide payroll process reviews, sample recalculations, and other assurance activities to assist in identifying risk issues and areas for improvement.
If you require assistance, please reach out to Elizabeth Lucas or your usual Grant Thornton advisor
