From 1 July 2026, employers across Australia will be required to pay superannuation to employees at the same time as salary and wages – a major shift from the current quarterly model. This change, known as Payday Super (PDS), is part of the Federal Government’s initiative to reduce unpaid superannuation and ensure workers receive their entitlements in a timely manner.
For many small to medium enterprises, this reform will require significant operational and cash flow adjustments. Below is a concise overview of what’s changing, what stays the same, and what your business should be doing now.
Why the Change?
The superannuation gap – the shortfall between what employees are entitled to and what they actually receive – is growing. According to the ATO, unpaid super reached $6.2 billion in 2022–23, with small businesses being the most common source of non-compliance.
This reform aims to:
- Reduce unpaid superannuation
- Protect employee retirement savings
- Modernise Australia’s SG system
What’s Changing from 1 July 2026
- Super Must Be Paid on Payday
Super contributions must be paid on or before the same day as wages are paid (the “Qualifying Earnings Day”).
- Reduced Payment Window
You’ll have:
- 7 business days after each pay cycle to ensure super reaches the employee’s fund (down from the current 28 days after quarter-end)
- 20 business days for first payments to new employees or to a new fund for an existing employee, or when an exceptional circumstances determination has been made.
Administration and Penalties Overhauled
- A new administrative uplift amount (AUA) of up to 60% may apply for late payments, replacing the $20 per employee penalty
- Late payment penalties of 25%–50% apply if SG is not paid within 28 days of assessment
- Interest on late payments will accrue daily
New Reporting Tools
The ATO will replace outdated spreadsheets with digital reporting tools, aiming to streamline voluntary disclosures and reporting obligations.
Tax Deductibility
The current rule making late SG payments non-deductible will be repealed. From 1 July 2026, all SG charges will be tax deductible, though penalties and interest will remain non-deductible.
What’s Staying the Same
- Super will be calculated at 12% of Qualifying Earnings (QE) (QE is a new term which for most employers doesn’t change the amount of super you are currently paying)
- No changes to salary sacrifice or eligibility rules
- Contributions are only considered “paid” when received by the fund, not when sent
- The employer is still responsible, even if delays are outside their control
Practical Challenges Ahead
- Cash Flow Impact
Paying super more frequently will reduce your cash float. Businesses with weekly or fortnightly payrolls must prepare for more regular outflows, which could be challenging without solid budgeting.
- Payroll Software and Systems
Most digital service providers (DSPs) are still updating their systems. Make sure your payroll and clearing house software is updated and compatible well ahead of time.
- ATO’s Transitional ‘Risk Zones’ (2026–27)
The ATO will adopt a “light touch” compliance approach in the first year:
- Green Zone: employer pays super on pay day, super is not received by the relevant fund on time, but this is corrected as soon as possible
- Amber Zone: employer does not pay super on pay day but super is received by the relevant fund by 28 days after the end of the quarter– medium risk
- Red Zone: employer does not pay super on pay day and super is not received by the relevant fund by 28 days after the end of the quarter
Note: This does not remove your legal obligation to pay SG on time.
Other Key Impacts
Retirement of ATO’s Free Clearing House
The Small Business Superannuation Clearing House will close on 1 July 2026. Businesses must transition to a commercial provider before then.
Overpayment Risk
Prepaying super to avoid late payments carries a risk: If an employee resigns, any SG overpayment cannot be recovered.
Maximum Contribution Base (MCB)
SG contributions will be capped annually, not quarterly. Employers must monitor high-income employees across the full year.
What Employers Should Do Now
- Review your payroll cycles
Weekly or fortnightly pay schedules will soon require super payments at the same frequency. - Speak to your payroll provider
Confirm they’re preparing for the Payday Super reforms and updating systems to handle same-day contributions. - Model your cash flow
Start forecasting the impact of more frequent super payments and consider whether payment cycles need adjusting. - Educate your team
HR, payroll and finance staff must understand the new rules and reporting requirements. - Review employment contracts and awards
A move to monthly payroll (to reduce payment frequency) may not be permissible under some awards or agreements.
Final Thoughts
The transition to Payday Super is a major change – the most significant superannuation reform in over 30 years. While the policy is aimed at fairness and retirement security, it creates new administrative burdens and financial pressures for business owners.
With less than six months of true working time before implementation, businesses should act early to ensure compliance, maintain employee trust, and avoid costly penalties.
If you need support reviewing your payroll systems or understanding how these changes impact your business, please don’t hesitate to reach out to your accountant at Leenane Templeton.
Disclaimer
The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.