Payday super: no further details but funding to improve unpaid super in bankruptcy (May 2024 Federal Budget Update)

Published on 15 May 2024 by Drew Pflaum
Categories: Business, Accounting, News

The Budget papers did not reveal any further details on the Government’s proposal to require all employers to pay their employees’ super guarantee (SG) at the same time as their salary and wages from 1 July 2026. However, the Government said it will provide $111.8 million over four years from 2024-25 (and $12.4 million per year ongoing) to progress its workplace relations agenda, including:

Payday super: $60 million will be provided over four years from 2024–2025 to increase the Productivity, Education and Training Fund to support practical activities by employer and worker representatives to boost workplace productivity and engage in tripartite cooperation. The Government said this will also support workplaces to implement policy changes such as payday super.
Unpaid super in bankruptcy and liquidations: the Government intends to recalibrate the Fair Entitlements Guarantee Recovery Program to pursue unpaid superannuation entitlements owed by employers in liquidation or bankruptcy from 1 July 2024. This is expected to achieve efficiencies of $13 million over four years from 2024–2025.
Fair Work non-compliance by large corporates: $27.5 million over four years from 2024–2025 will be provided to enable the Office of the Fair Work Ombudsman to continue targeting non-compliance with the Fair Work Act 2009 by large corporate employers.
Small business support for workplace law changes: $20.5 million over four years from 2024–2025 will be provided to boost funding for the Office of the Fair Work Ombudsman to support small business employers to comply with recent changes to workplace laws.
National labour hire regulation model: $2 million in 2024–2025 will be provided for the Victorian Government to establish a project office and progress a national labour hire regulation model through harmonisation of state and territory laws. Costs will be partially offset by not proceeding with the 2019–2020 Federal Budget measure for a National Labour Hire Registration Scheme to protect vulnerable workers.

Payday super background

The “payday super” measure was originally announced as part of the 2023–2024 Budget. Scant details were provided at that time pending consultation with industry and stakeholders.

A consultation paper was released on 9 October 2023 to tackle the age-old problem of what happens when employers do not pay the correct SG entitlements to their employee’s nominated fund by the quarterly payment due date. Generally, employers become liable for the SG charge (payable to the ATO) but such SG liabilities often remain unpaid for extended periods of time, which is stated to be exacerbated by the current design of the SG system.

This is a major problem when, for example, employers enter liquidation without having paid their SG obligations. The ATO states that businesses often enter liquidation or bankruptcy before the underpayment is identified, limiting its ability to conduct effective compliance activities and recover unpaid superannuation.

Options for implementation

The consultation paper mooted two models for the Payday Super proposal:

An employer payment model, based on a requirement that the employer make the payment of an SG contribution on payday. Where a payment is not made on payday, an employer would become liable to pay the SG charge from this date. This model would require a new reporting and data mechanism to be established to provide the ATO oversight of the day that SG contributions are made – as the current reporting and data mechanisms do not provide a verifiable payment date data point that could be used to monitor compliance in real-time.
A due date model, which would maintain the current model whereby an employer becomes liable to pay the SG charge if their employee’s superannuation contribution is not with their fund by a specified due date. Consultation with industry has suggested a feasible due date for superannuation contributions to reach the fund would be between eight days and 13 days after payday. This is based on an assumption that the current payment process would be streamlined and the Bulk Electronic Clearing System is still the main payments platform – although the document notes that if new payments technologies are adopted the time for SG payments to reach the fund could be less than three days.

Compliance mechanisms

The Government is stepping up investment in the ATO’s data matching capabilities, to increase SG compliance. The ATO is investing in creating a new unified database which matches Single Touch Payroll (STP) data from employers and Member Account Transaction Service (MATS) data from superannuation funds at scale. The Government also intends to set unpaid SG recovery targets for the ATO, which will be reported annually, as part of its Securing Australians’ Superannuation package.

In the longer term, the ATO will use enhanced reporting by employers and funds to ensure that superannuation payments have been paid on payday or received by the fund by the due date. The ATO will initiate SG charge assessments through its own compliance activities more frequently – with lower reliance and need for cases to be raised through employee notifications.

Issues for employers to consider

While the benefits of payday super are clear for employees, it will represent a significant change for employers compared to the current requirements. The following issues for employers to consider ahead of the proposed changes have previously been flagged:

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 digitization 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 SG payments would have to be made on payday rather than having an option to defer the payment until the quarterly due date.
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 SG payments.
Returned super: SG 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 SG contributions to reprocess, resulting in late SG payments.
Out-of-cycle pays: employers will need to reassess 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 an SG payment by the due date must pay the SG charge (SGC), which includes interest charges, administrative costs, and the loss of income tax deductibility for the SG contribution. While it is unclear whether the regulations around SGC will be affected as a result of payday super, the increased frequency of SG payments will make employers susceptible to incurring SGC.