Government floats ‘pay day’ super changes

What is the proposed change?

 The Federal Government has announced a plan to reform the way in which organisations pay employees’ superannuation as part of broader reforms around wage theft. The legislative change would complement other superannuation reforms, such as lifting the Superannuation Guarantee (SG) rate to 12 percent by 1 July 2025. If passed, employers will need to pay superannuation into their employee’s nominated superannuation accounts on the same day as the relevant salaries and wages (Pay Day). A seven-calendar day grace period will account for any impact on the flow of funds and the updating of account balances.

 If employers don’t pay superannuation on time, they may be liable to pay the SC Charge. This involves:

• The charging of daily compounding interest, levied at the general interest charge rate (currently 11.36%) until the shortfall is paid;

• Additional charges levied to cover the cost of enforcement. This would be calculated as a proportion of the SG Charge shortfall of up to 60%; and up to a further 50% if the SG shortfall is not paid within 28 days of the ATO assessment.

What will this new proposal mean for employers?

Employers will need to have systems in place to enable the payment of superannuation on Pay Day and ‘real time’ reconciliation to ensure any erroneous amounts are identified and rectified. If organisations have the right systems in place, this could reduce the impost of employee superannuation reconciliation as there will be no need for quarterly remittances. Employees will be more readily able to monitor superannuation contributions on their pay slips, given there will be no time delay.

It is yet to be determined how these changes will relate to employers who process payroll corrections in the following pay period. Payroll corrections are a common occurrence in many businesses which creates a significant area of uncertainty in relation to superannuation payments.

This is an important development for organisations currently undertaking a remediation of past employee entitlements. It is uncertain whether these provisions will be applied retrospectively. At present, any unpaid or underpayment of superannuation generally attracts an interest rate equivalent to the cash rate plus 4% upon remediation.

We can expect this federal legislation to be designed towards the end of 2024, with an industry consultation process to follow.  The government has signalled that the agreed changes will be implemented by July 2026 which may seem like a long way off. However, when it comes to implementing new systems and processes and testing the effectiveness of new controls, this timeline could be optimistic. Employers should be reviewing their historical superannuation payments and proactively remediating any underpayments. We encourage organisations to review their payroll processes and systems now to ensure that when these likely changes come into effect, they are prepared.