Will you be ready for pay day superannuation?

The changes were announced in the 2023/24 Federal Budget as a way of addressing the amount of superannuation that goes unpaid so the ATO can detect this earlier. The desire is to introduce a system that is both workable and ‘adequately punitive’.

The government has recently issued a consultation paper to gather input on how we can actually make such a system work, so they can draft legislation to enact the changes.

From the questions raised in the consultation paper, it seems clear that the government is envisaging a future where payroll systems are integrated with the ATO’s systems, with the potential benefits of this including the mitigation of errors with tax file numbers and superannuation account details — to name a few. That is, employers won’t be able to set up employees in the system unless their details match what the ATO has on file.

What does this mean for employers?

For many employers, this may require a sizeable shift in terms of their payroll technology, which may also be quite costly. Many of these organisations may have only just finished paying off the payroll upgrades required to deal with Single Touch Payroll.

On the upside for employees, more frequent and earlier superannuation contributions should result in higher earnings in the employees’ funds. Of course, the flip side to this is that the need for employers to pay out earlier may affect financing arrangements for their businesses, and potentially increase the cost of doing business through additional interest charges.

The government’s consultation paper notes a number of potential difficulties with moving from a quarterly obligation to a pay day obligation, and in particular, how to deal with shortfalls and penalties.

Areas to be addressed include: 

• Will we still cap the required contribution amount based on a maximum earnings base? And if so, over what time frame should we measure this and perform the necessary reconciliations? How would we manage situations where employees’ salaries fluctuate significantly each pay day?
• The current rules look at when the moneys are received by the superannuation fund to determine when the employer’s obligation has been met. This would seem inappropriate under a pay day model, but do we still need rules regarding the time it takes moneys to be received by the fund – particularly where payments are made via a clearing house? If we are not using a system integrated with the ATO, what should be the consequences when a payment ‘bounces’, such as due to incorrect fund details being provided?
• Employers around the country have a multitude of different pay days, including under standard pay cycles, as well as additional off-cycle payments. How is the ATO going to monitor late or short payments of superannuation without a standardised due date for payment?
• How will we manage errors, and what time frame would be appropriate for allowing corrections? Should employers be able to voluntarily pay a top up when they discover they have short paid? Should there be a different calculation for this amount? What timeframe would be appropriate? Should the payment be tax deductible?
• Should the current late payment offset mechanism be retained – and with its current 4-year time limit?
• Is 10 per cent per annum interest on shortfalls to cover lost earnings appropriate?

July 2026 may seem a long way off, but there is plenty of work to be done in the meantime.

If you would like to contribute to a submission in response to the government’s consultation paper, or for further information, contact Elizabeth Lucas below.  

Learn more about how our Employment tax services can help you

Visit our Employment tax page