Explained: Payday superannuation reforms and what small businesses need to know

Treasurer Jim Chalmers. Source: AAP Image/Lukas Coch

Employers will need to pay their workers’ superannuation every time they pay their regular wage, thanks to a significant change to retirement saving rules introduced by the Albanese government.

On Tuesday, Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones announced the long-established pattern of quarterly superannuation guarantee (SG) payments will end on July 1, 2026.

The plan promises to reshape how businesses big and small handle earnings locked away for their employees’ retirement.

Here is what employers need to know about the change.

What is being proposed?

Superannuation is a mandatory payment employers must make on behalf of their workers, with the intent of providing them a financial safety net when they leave the workforce.

The SG, which is paid into a superannuation fund of the worker’s choice, currently equates to 10.5% of a worker’s income and will grow to 12% in 2025.

As it stands, businesses are required to pay their workers’ SG at least quarterly.

At face value, the plan is simple: the federal government wants to tie SG payments to a worker’s regular payday, greatly increasing the frequency at which businesses direct funds to their superannuation accounts.

Why?

Simply put, more frequent SG payments mean more regulators and the Australian Taxation Office (ATO) have more opportunities to discover if employers are falling behind on their obligations.

While the vast majority of businesses adhere to the current requirements, the federal government, unions, and superannuation funds themselves fear some businesses are not keeping pace, depriving workers of funds that are rightfully theirs.

Some $3.4 billion in superannuation went unpaid in 2019-2020, the ATO estimates.

Given the compounding nature of superannuation, $3.4 billion in unpaid SG could deprive workers of much more when they reach retirement in several decades’ time.

By the same token, increasing the frequency of SG payments could have a small, but appreciable effect on a young worker’s retirement savings.

In their statement, Chalmers and Jones said a 25-year-old median income earner could see a $6,000 improvement to their superannuation balance at retirement with fortnightly SG payments compared to the current quarterly system.

Evidently, the federal government believes more could be done to ensure those payments flow through to retirement funds.

What are the existing penalties?

As it stands, employers who fail to pay the required SG by the quarterly deadline are liable for the Super Guarantee Charge (SGC).

It is comprised of:

• The SG shortfall itself
• The choice liability — a penalty that may be applied for not complying with the obligations of the relevant superannuation fund — which is based on the value of the shortfall, and capped at $500
• Interest of 10% per annum, calculated from the start of the relevant quarter
• An administration fee of $20 per employee, per quarter.

The SGC is due a month after the relevant missed SG payment deadline, but businesses that fail to meet that second due date can face extra penalties of up to 200% of the original SGC.

The ATO says it aims to work with businesses that fall behind on their SG timelines but reserves the right to harsher penalties in case of continued compliance issues.

“We may notify other employees about potential SG owed,” the tax office says.

“We can also take firmer actions to pursue outstanding debts, including the commencement of legal proceedings to recover the amount owed.”

Despite those rules, and the opportunity for non-compliant businesses to face massive fines, the federal government evidently believes more could be done to crack down on non-payment.

More frequent SG payments will empower employees to track payments from their employers, the government holds, raising the odds of a worker blowing the whistle when a business underpays.

That goes double for casual or part-time workers without a predictable weekly wage, who may find it hard to accurately monitor their quarterly superannuation entitlements through piecemeal payslips.

Even though the new payday cycle will increase the number of times a business could get it wrong, employers which do fall behind on their SG obligations could technically face leaner penalties compared to the quarterly system, the government claims.

If an employer cops an SGC for a missed fortnightly SG payment, it would naturally accrue less in interest than an SGC based on a quarterly missed payment.

“More frequent super payments will make employers’ payroll management smoother with fewer liabilities building up on their books,” Chalmers and Jones said.

What does this mean for small business?

Employers who have long been locked in to the quarterly SG payment system may have fine-tuned the process, and have likely geared their accounting systems and software to pay four times a year.

Tying SG payments to employees’ regular payslips will obviously require small business owners to adjust, and will likely cause some entrepreneurs to take a hard look at their cash flow position.

However, the administrative toll of that adjustment is up for discussion.

With more than three years to go until the changes take place, the Albanese government says employers will have plenty of time to retool their processes.

A consultation period will also take place later this year, giving employers the chance to share their views with the ATO and Treasury.

Leading figures in the superannuation industry, whose members stand to benefit from increased SG compliance, suggest small businesses won’t face too much of a hassle.

Australian Institute of Superannuation Trustees CEO Eva Scheerlinck hosed down the argument that increased payment frequency will also boost complexity.

“Historically, there has been an argument that paying more frequently than quarterly would be a burden on employers,” she said.

“However, since the introduction of digital initiatives such as SuperStream and single-touch-payroll, paying super is part of an automated process, requiring no additional manual effort.”

Many accounting platforms already allow for businesses to set custom superannuation payment times, suggesting the technical infrastructure may already be in place for some businesses.

What else should I know?

The move is just the latest in a string of rules brought forward by the Albanese government to bolster the superannuation system, and ensure businesses pay what is owed.

Legislation introduced to Parliament by Industrial Relations Minister Tony Burke last month intends to add a right to superannuation to the National Employment Standards.

If passed, it would also make it easier for workers whose modern awards or enterprise agreements don’t require employers to make superannuation contributions to chase their workplaces through court for their unpaid superannuation guarantee.

“It is simply not good enough that employees are missing out on their superannuation,” Burke said at the time.

“No employee should have their retirement incomes sabotaged by dodgy or negligent employers.”

Earlier, the federal government announced it would increase the tax rate on superannuation balances over $3 million, potentially affecting a small number of SME owners who intend to funnel the proceeds of a business sale into their retirement funds. 

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