Pay Day Super Overview

Summary

Payday Super (PDS) comes into effect from 1 July 2026 which will require employers to pay employee superannuation contributions earlier than the previous quarterly deadlines to ensure they are received by the employee’s superannuation fund no later than 7 business days after the qualifying earnings day.

Employers need to allow time for superannuation contributions to pass from the clearing house to the employee’s fund of choice. Funds received by an employee’s superannuation fund after 7 business days will be considered late and employers may be subject to shortfall and late payment penalties. Accordingly, payment of superannuation contributions on the same day as the pay cycle is paid is strongly encouraged.

Employers will need to plan business cash flow accordingly for this change. Firstly, the ongoing superannuation contributions to be paid with each pay cycle could mean a change from 4 payments a year to 52 payments a year if they have a weekly pay cycle. Secondly, employers need to be cognisant of the change from the existing quarterly superannuation contributions system to the PDS system and ensure they have sufficient cash flow in July 2026 to meet both the June 2026 quarterly contributions and the new PDS contributions from 1 July 2026.

The shortfall and late payment penalties are also changing, including the tax deductibility.

As part of the PDS implementation, the ATO Small Business Superannuation Clearing House (SBSCH) will be closed from 1 July 2026. Employers will not be able to access the ATO SBSCH after 30 June 2026.

Superannuation Guarantee Rate

There is no change to the mandatory superannuation guarantee (SG) rate of 12.00%.

Qualifying Earnings

From 1 July 2026, SG will be calculated on a new earnings base called Qualifying Earnings (QE) which will bring together Ordinary Time Earnings (OTE) and other amounts that are currently included in an employee’s salary or wages for SG, including salary sacrifice amounts. Fundamentally, this will not change the amount of SG required to be paid as the amendment is to predominantly streamline existing SG concepts.

QE day is the day where QE are paid to an employee.

Paying Superannuation Contributions

From 1 July 2026, an employer must pay superannuation contributions (SG + Salary Sacrifice amounts) as soon as practical so that contributions are received by an employee’s superannuation fund by the 7^th business day after the QE day. Legislation does not prescribe when an employer must make the payment, however our recommendation is employers pay superannuation contributions on the same day employees are paid (QE day).

Employers must allow for processing time through any clearing house, as well as time to resolve any rejected payments. If contributions are paid to an employee’s fund after the 7^th business day after QE day, employers may be subject to SG Charge.

There are limited circumstances in which the 7-day time frame could be extended:

1. New employees or if an employee changes their fund for a pay run. In this instance, superannuation contributions are to be allocated no later than 20 business days after QE day for that employee (i.e. no extension for the other employees in that pay run).
2. Out of Cycle payments (for example, commissions, bonuses, back payments). The Commissioner may make a determination to allow an extension of superannuation contributions to be included in the next usual QE day. Our recommendation, however, is that given the Commissioner has discretion but is not obliged to allow an extension, is that superannuation contributions are paid on the same day as the Out of Cycle payments are paid.
3. Exceptional Circumstances (for example, natural disasters). In this instance, the Commissioner can make a “exceptional circumstances determination” that will cover a class of employers and allow an extension of time for superannuation contributions to be made until the later of 20 business days from when the determination is made and 20 business days after QE day.

SGC Charge

Where employers pay superannuation contributions late for a QE day, they will be penalised with SG charge. SG Charge is made up of four components:

1. Individual Final SG Shortfall for the QE day. There are 2 components to this:
   • Individual base SG Shortfall = SG contributions for the QE day less on-time eligible contributions received
   • Individual final SG Shortfall = Individual base SG Shortfall less the eligible contributions received late but before SG charge assessment made.
2. Individual Notional Earnings Component. This is interest charged at the ATO General Interest Charge rates compounding daily on the Individual base SG Shortfall until the SG Shortfall is Nil.
3. Administrative uplift amount. Currently, this could be up to 60% of SG Shortfall and Notional Earnings Component.
4. Choice Loading. This applies where an employer makes contributions to a fund not in accordance with an employee’s choice of fund notice. Calculated at 25% of SG contributions for the QE day, capped at $1,200 per notice period.

Employers are recommended to complete and lodge voluntary disclosure statements as soon as they become aware of any SG shortfall. Lodgement of voluntary disclosure statements can reduce the administrative uplift component.

The Commissioner can also make assessments of employer’s SG shortfall and SG charge payable. In this instance, it is less likely that the administrative uplift component will be reduced.

The tax treatment of late SG payments and amounts payable under the SGC is changing from 1 July 2026. Currently, late payment of superannuation contributions including the notional interest and administration penalties associated with the late payment are not tax deductible. However, from 1 July 2026, SG Charge applicable to a QE day will be tax deductible but any penalties and/or interest incurred resulting from the late payment of the SG Charge will not be tax deductible.

Closure of the ATO Small Business Superannuation Clearing House

The ATO Small Business Superannuation Clearing House (SBSCH) will be closed from 1 July 2026. Employers will not be able to access the ATO SBSCH after 30 June 2026.

We strongly recommend employers make this change well before 30 June 2026 to ensure they are ready for PDS compliance from 1 July 2026.

Further, with the ATO SBSCH no longer accessible from1 July 2026, employers are required to download any reports and/or records they need well before 30 June 2026.

Cash Flow Planning

With the timing of superannuation contribution payments aligning with pay cycles, employers will need to review and plan cash flow accordingly. The cash flow impact will vary between employers depending on pay cycles and how often superannuation contributions are currently paid. For example, an employer with a weekly pay cycle who pays superannuation contributions quarterly, it will mean a change from 1 payment of superannuation contributions at the end of a quarter to 13 individual superannuation contribution payments during a quarter (or 52 payments a year vs 4 payments a year).

Cash flow planning is also needed for the one-off change from the existing contribution system to the PDS system in July 2026. For employers that pay super contributions 28 days after the end of the month or quarter, there would be payments in the month of July 2026 under the existing contribution system plus contributions required under the PDS system.

Payroll Software

Australian payroll software providers are well progressed in preparing for the change to PDS coming into effect from 1 July 2026 and have built in the necessary payroll workflow steps to assist with electronic payments and reporting through SuperStream.

It would also be an opportune time for employers to review employee onboarding processes, check payroll configurations and reporting processes and systems to ensure they are ready for PDS. Increased frequency of reporting and deadlines can lead to an increased risk of mistakes being made and therefore increased risk of penalties. Ensuring your payroll system and processes are ready will help mitigate these risks.

If you need any assistance and have any queries with getting ready for PDS please contact your client manager to discuss further.