Key components of the Payday Super Legislation
- Payment required within 7 business days, rather than 28th day after end of quarter.
- Late payments are now deductible, whether paid before assessment, or paid as part of SG (Superannuation Guarantee) charge.
- Notional earnings (interest) and administrative uplift (admin fee) also deductible.
- Notional earnings (interest) calculated from QE (Qualifying Earnings) day, rather than from1st day of quarter.
- GIC applied on SG charge owed not deductible, given change in legislation re ATO interest from 1 July 2025.
- Penalties for non-payment of assessments are specifically not deductible.
- SG charge calculated based on late paid super, which is the amount owed at QE day. This is therefore based on earnings subject to super, rather than having all salaries and wages subject to super when paid late.
- Voluntary disclosure required to self-correct and self-report SG errors.
- The “cost” of late payment can be very low if employer self-corrected and self-reported early, and before assessment is issued by the ATO.
- Where SG charge assessment is made, automatic application of penalty if do not pay the amount in the notice in full within 28 days - penalty cannot be remitted.
- All super up to and including 30 June 2026 still subject to the existing rules, even if it otherwise has a due date of 28 July 2026.
What types of Super payments are covered under the Payday Super Legislation?
The legislation introduced a new concept of “qualifying earnings”.
Qualifying earnings in summary would be basically all amounts that are normally subject to super guarantee, which includes ‘ordinary time earnings’ from the existing legislation.
The day one or more qualifying earnings are paid by the employer is referred to as a QE day. The individual employee’s super guarantee amount is 12% of the total amount of qualifying earnings (or whatever the SG rate may be if not 12%).
There is an adjustment mechanism for employees who exceed the MCB (Maximum Contributions Base), and there are ways for employees to apply for an exemption certificate so employers will not be subject to SG charge for non-payment of super where covered by the exemption certificate.
What does the new term “Qualified Earnings” (QE) mean and how it differs from “Ordinary Time Earnings” (OTE)?
Qualifying earnings includes OTE (definition unchanged), but also other amounts such as commissions, director fees, contract payments to deemed workers, and various other types of payments
What’s changing when it comes to the timing of super payments?
Current legislation requires super payments to be made no less than quarterly, with the due date being the 28th day of the month after end of each relevant quarter. This is the date that the amount must be received and allocated to the member’s account, not the date the payment was first made by the employer. The only exception to this is payment to an “approved clearing house” where the date the payment is received by the clearing house counts as the payment date.
Under the new legislation, super payments must be made within 7 business days (the “usual period”) to be considered on-time, and the amount must be received and “able to be allocated within the fund”. This is a key change because the payment can be treated as on time even if the fund does not physically allocate the amount by the due date.
Payments made after the usual period will be considered late, with the following notable exceptions (“extended usual period”):
- First time payment to either a new employee, or an existing employee with a new super fund – in these cases, the first payment is due within 20 business days.
- Payments subsequent to first time payment that are due before the expiry of the first payment’s 20 business days period – in these cases, each subsequent payment is due at the later of the expiry of the 20 business days period of the first payment, or the expiry of the 7 business days period of the current payment.
- Employers affected by special determinations under legislative instrument, such as blanket relief for disaster-affected employers – in these cases, the payment due date is 20 business days from the day after the determination is made.
Reminder: Under the new legislation, the definition of “approved clearing house” is removed as the only current approved clearing house is the ATO’s small business super clearing house, which will be retired from 1 July 2026.
How is the Superannuation Guarantee Charge (SGC) calculation is changing?
Employers are no longer required to lodge SGC statement for late paid super after 1 July 2026.
Instead, employers would make a voluntary disclosure (VD) on the approved form (TBC by ATO) of the amounts it had paid late (i.e. after 7 business days from QE day, but before the lodgement of the VD). The Commissioner would then assess SG charge upon receipt of the VD.
The Commissioner also has power to issue SG charge assessments on its own accord, including as part of tax audits and reviews.
SG charge under the new legislation consists of the following components:
- Notional earnings, calculated from the QE day until the date the late payment is made, or until the assessment date if no late payment is made (i.e. still owing super);
- Administrative uplift of up to 60% of the final shortfall amount plus the notional earnings amount;
- Any choice loading amounts
Note, in cases of voluntary disclosures of late payments where there no further SG shortfall owed at the time of the disclosure, the administrative uplift may be reduced to nil subject to Commissioner’s discretion.
How is the Superannuation Guarantee Charge (SGC) calculation is changing?
Employers are no longer required to lodge SGC statement for late paid super after 1 July 2026.
Instead, employers would make a voluntary disclosure (VD) on the approved form (TBC by ATO) of the amounts it had paid late (i.e. after 7 business days from QE day, but before the lodgement of the VD). The Commissioner would then assess SG charge upon receipt of the VD.
The Commissioner also has power to issue SG charge assessments on its own accord, including as part of tax audits and reviews.
SG charge under the new legislation consists of the following components:
- Notional earnings, calculated from the QE day until the date the late payment is made, or until the assessment date if no late payment is made (i.e. still owing super);
- Administrative uplift of up to 60% of the final shortfall amount plus the notional earnings amount;
- Any choice loading amounts
Note, in cases of voluntary disclosures of late payments where there no further SG shortfall owed at the time of the disclosure, the administrative uplift may be reduced to nil subject to Commissioner’s discretion.
What are the key dates for implementation and on-going operation of Payday Super?
Payday Super will apply to all qualifying earnings paid from 1 July 2026. This means the first late period will start from Monday 13 July 2026, since Friday 10 July 2026 is 7 business days from the first possible QE day on 1 July 2026.
As there are no apparent deferral or amnesty periods offered, the expectation would be all employers, regardless of being a small business or otherwise, are ready to comply with Payday Super from 1 July 2026.
Under what circumstances might employers still be liable for penalties even if super payments have been made on time?
There may be circumstances where despite making payments employers would have a SG shortfall amount. For example, payment rejected by super fund due to incorrect/incomplete employee details, or payment to a non-complying SMSF. In these cases, the SG amount is not “able to be allocated within the fund”, therefore do not meet the eligible contribution criteria.
In these cases, the “penalty” is a notional earnings component plus an administrative uplift amount, which is added on top of the SG shortfall amount in working out the SG charge amount that will be assessed by the ATO. This may be initiated by the ATO, or following a voluntary disclosure statement made to the ATO.
Following assessment date, GIC will accrue on the outstanding debt if not paid on time, and a further penalty of 25% will apply if the SG charge assessment is not paid within 28 days of the issuance of the assessment. This penalty will increase to 50% if the employer has received a SG charge assessment within the last 24 months. Neither the GIC nor penalty are deductible.
Another circumstance is where the employer does not pay into the employee’s chosen fund, whether by mistake or otherwise, which gives rise to a “choice loading” liability – per subsection 20A(1).
Choice loading is calculated at 25% of the SG amount that was not paid to the employee’s chosen fund, and operates in a similar manner to the existing choice liability provisions.
Choice loading is added to any SG charge as described above.
What concessions exist for employers?
The primary concession to be exempt from SG charge is where the employer is covered by a legislative instrument provided by the Commissioner, such as due to natural disaster.
However it is worthwhile to note that such determination does not remove the SG liability in its entirety, it only removes the application of SG charge mechanism such that any late payment up to 20 business days after the end date of the legislative instrument will not give rise to SG charge.
There are also mechanisms to allow payments made in July 2026 to count towards the June 2026 quarter super under the existing legislation, even if those payments were originally intended to be for July 2026 qualifying earnings. This will assist employers to avoid inadvertently trigger SGC liabilities under the existing rules during July 2026.
How will the closure of the Small Business Superannuation Clearing House (SBSCH) impact over 200,000 employers currently using the system?
There are no replacements for SBSCH planned by the Government. Affected employers are encouraged to find alternative clearing house solutions, such as those offered by payroll software providers or by industry super funds.
Prosperity can assist with providing tailored payroll solutions for businesses of all sizes and levels of complexity.
How will Single Touch Payroll be updated to cater for Payday Super reporting?
There are no major changes to Single Touch Payroll (STP) to cater for Payday Super. It is expected that employers will continue to report through STP (including the additional disclosures in STP Phase 2), and the ATO will make use of these data, plus data from super fund providers, to determine compliance with Payday Super requirements of employers.
How are out-of-cycle payroll payments treated under Payday Super?
Typically out of cycle payroll will be treated in the same manner as any other qualifying earnings. However, the legislation provides the Commissioner power by legislative instrument to determine the kinds of payments that constitute “out-of-cycle payments” and the requirements that must be met. It is expected that qualifying “out-of-cycle payments” have a QE day that is the same as the latest QE day of the usual next payroll period. This will ensure employers may not have to make an out-of-cycle super payment for an out-of-cycle payroll payment.
What is currently included in the Draft ATO Payday Super PCG (Practical Compliance Guideline)?
PCG 2025/D5 outlines how ATO will assess the compliance risk of the first year of Payday Super, with the usual green/amber/red traffic light system of risk zones.
- Low-risk (green) will be for employers that has fully complied with SG requirements, including where some contributions may have not been received on time but this is quickly rectified by the employer.
- Medium-risk (amber) will be for employers that do not meet the green zone criteria, but otherwise ensured they have no shortfall amounts by end of 28 days after end of the quarter (i.e. following pre-Payday Super rules).
- High-risk (red) will be for employers that are neither green zone nor amber zone, such as having one or more shortfalls after 28 days after end of the quarter.
What are the recommendations to employers who have employees that have not provided an alternative super fund by 30 June 2026? Should they delay paying employee wages?
Employers must follow the required employee onboarding procedure, including providing a choice form, and where not received back in a reasonable timeframe, make enquiries to ATO for stapled fund. Only when the employer is satisfied that the employee does not have a stapled fund and did not return the completed choice form can the employer put the employee into a default fund, without concern of triggering a choice loading.
Remember where you are making a first-time payment to an employee’s super fund (new super fund), employers receive an extended usual period of 20 business days. Therefore, employers should seek to resolve the super account issue within this 20 business days period.
In the event the issue is unable to be resolved, employers should rest assured that the penalty for late payment under the new legislation is significantly less harsh than the existing legislation. Late payments continue to be deductible, while the nominal earnings and administrative uplift components are limited to the time period between QE day and date of late payment.
Under the new rules, what criteria does the ATO use to determine whether a fund is ‘non-complying’ and whether a SG charge applies?
The good news is that new rules do not change how the ATO determines whether a fund is ‘non-complying’ and when a SG charge applies. A fund that is non-complying may not be able to accept contributions. Therefore, the payment of a contribution to a non-complying fund will not discharge the employer’s obligation to have made their minimum SG to reduce their SG shortfall to nil under the new rules – in the same manner as the existing rules.
It is therefore important for all SMSF clients to stay compliant by ensuring on time lodgements and meeting all SMSF compliance obligations.
If you are an employer, and you become aware that an employee’s SMSF is non-compliant, you must make reasonable enquiries to confirm whether the status is incorrect (e.g. employee provides a notice of compliance), or alternatively provide the affected employee with a new choice form to obtain a new super fund account to pay the contribution into. In the latter case, as it is a contribution to a new fund, the employer has 20 business days from the QE day to pay.