What Does 'Payday Super' Mean For Employers?

'Payday Super' aims to provide a much-needed boost to employee superannuation funds across the country, but what does the change mean for employers? Since being announced, the reform has received a mixed reaction among business owners, with some concerned that it will increase the strain on small business cash flow.

Regardless of the view of the business, it is important that you know your obligations as an employer. To help you understand the change and what you need to do to prepare, we have created a quick guide with everything you need to know about payday super.

What is payday super?

From 1 July 2026, employers will be required to pay their employees' superannuation at the same time as their salary and wages. If wages are typically paid on a fortnightly basis, employers will need to make sure that their superannuation obligations are also paid fortnightly. The intention is to help more Australian workers build healthier retirement funds as a result of greater compounding returns.

In addition to the increased frequency of payments, employers will also need to remember that the Superannuation Guarantee is also set to increase by the time payday super is required. The current rate of 11% will peak at 12% as of 1 July 2025.

Prior to the introduction of 'Payday Super', employers are able to pay their superannuation obligations quarterly, which helped to relieve cash flow pressures for many businesses. However, this system also led to incidents where super entitlements were not being paid the correct amount, not being paid on time, or not being paid at all. Through 2019-20 alone, the Australian Taxation Office (ATO) estimates that $3.4 billion worth of super contributions went unpaid and up to $29 billion over the last six years, sparking the need for reform.

Payday super also aims to strengthen the country's superannuation system and improve the retirement incomes of millions of Australian workers. In a press conference following the 2023 Federal Budget announcement, Assistant Treasurer and Minister for Financial Services, Stephen Jones, gave the example of a 25-year-old median income earner currently receiving their super contributions quarterly and wages fortnightly. With payday super, they could be around $6,000 (or 1.5%) better off when they retire thanks to the compounding interest of more frequent payments.

How does payday super affect employers?

Update your payroll management systems
Payday super is expected to make payroll management easier for employers. The frequency of payments should allow them to track their contributions more effectively and keep unpaid super obligations from building up on their books over the year. In addition, previous digital initiatives, such as Single-Touch-Payroll (STP) will help to automate payments. Initially, the change may take some getting used to, but businesses have just over three years to review and retool their payroll management systems and software before the July 2023 cut-off.

Keep an eye on your cash flow
One of the main concerns with payday super, especially among small business owners, is having the cash flow to make more frequent payments. The new system will require employers to front their super contributions each pay cycle rather than just once a quarter, which is likely to increase financial pressure on businesses with poor or unstable cash flow. Historically, this has been a major contributor to missed payments. Now more than ever, businesses will need to implement effective cash flow management measures or even consider engaging a professional accounting firm to assist with budgeting and forecasting.

We are here to help

While the cut-off for switching to payday super isn't until 1 July 2023, employers have a lot to consider before then. In addition to adjusting their payroll management and accounting systems, which, depending on the structure of your business and how salary and wages are paid, may be a considerable administrative task, they also need to review their current approach to budgeting and cash flow management. 

Azure Group has a proven track record of providing excellent outsourced payroll management services and implementing effective cash flow management strategies. With extensive knowledge of both functions, our team of experienced professional accountants can help you understand your payday super obligations and prepare your business to transition from your current system. Ensure your business remains compliant with the upcoming changes by talking to the team at Azure Group today.

Have you noticed our #FridayExpertTips? Here's one that relates to Cash Flow.

“Good cash flow forecasting gets more accurate over time: the most important things to do, like most things in life, is to start.”