Payday Super explained ahead of 2026 rollout

Garreth Hanley:
This is With Interest, a business, finance and accounting news podcast, brought to you by CPA Australia.

Tahn Sharpe:
Welcome to CPA Australia's With Interest podcast. I'm Tahn Sharpe, Editor of INTHEBLACK Magazine. Today we're unpacking the introduction of Payday Super, which presents as one of the biggest incoming changes to Australia's superannuation system. From July 2026, employers will need to pay superannuation contributions at the same time as wages, a move away from the quarterly model that's been in place for decades. Of course, the change will affect everything from payroll systems and cash flow, to compliance and client advisory work.

So today we'll explore what Payday Super means, why it's happening, and how accountants can help small businesses prepare for a smooth transition. To help me do that, we start with Richard Webb, who is CPA Australia's Superannuation Lead and a trusted voice on retirement policy and reform. Also with us is Gavan Ord, CPA Australia's Senior Manager of Business and Investment Policy, and a longtime advocate for small business.

I think it's fair to say these two gentlemen should combine to bring deep insight into the implications of this reform for accountants and other finance professionals, as well as their clients. Our third guest is Kristen Yarbrough, Product Manager at Cloud Payroll, and she joins us to provide the all important systems perspective. So helping us understand what businesses need to do in order to ensure their payroll software and all the associated clearinghouse arrangements are ready for the shift. Welcome everyone to With Interest. So let's drive straight into the upcoming changes. Richard, I'll start with you. What exactly is Payday Super?

Richard Webb:
Payday Super is a major reform to Australia's superannuation system, and it's due to take effect from the 1st of July in 2026. So employers will basically be required to pay superannuation contributions at the same time that they pay their employees' wages. And this is a huge change from the current model where contributions are not required until after the end of the quarter.

Tahn Sharpe:
Okay, thanks Richard. That's clearly a big shift from the current quarterly system. Why is it happening and who is responsible for this?

Richard Webb:
So, the reasons that have been given by the government is that the change is being driven by the need to improve the integrity and the efficiency of the superannuation system. So you'll probably be aware that there are billions of dollars that the ATO has identified that in superannuation go unpaid each year. And this can be for a variety of reasons. It can be due to delays or failures in the quarterly payment system and various other reasons. So by aligning superannuation payments with payroll, the government is attempting to close the gap and ensure that employees receive what they're entitled to.

So basically, there's two goals. First of all, to ensure that employees receive their superannuation entitlements more promptly, of course, but also to reduce the instance of unpaid or delayed super contributions, which has been a persistent issue in the system. Now the good news for employees is that more frequent payments also mean that superannuation balances can grow faster due to the magic of compound interest, and less time out of the market. And this is hugely beneficial in particular for younger workers, but also those with lower balances and women as it helps build retirement savings more effectively over time.

From a compliance perspective, this will also simplify monitoring and enforcement. So the ATO will be better able to track super payments more closely and through enhanced reporting mechanisms, which should theoretically make it easier to identify and address non-compliance. But also, Australians will be better able to line up their superannuation guarantee contributions with their payslips, and see any discrepancies sooner.

Tahn Sharpe:
Okay, so more payments more frequently benefit people superannuation balances and it also reduces the chance of missing a payment. So there's a compliance factor there as well.

Richard Webb:
That's right.

Tahn Sharpe:
And when we look at who's responsible for it, was there a legislation that came about as a result of an inquiry?

Richard Webb:
Well, the legislation took a little while to eventually get to Parliament, but it actually made it through Parliament once it was introduced, pretty quickly. It was passed by the Senate and received Royal Assent in the same week. So it's all good to go. There does need to be some finer detail ironed out, but that's all being done now.

Tahn Sharpe:
Right, so obviously a big win for workers there. Gavan, I might bring you into the conversation now, what does this mean for small businesses?

Gavan Ord:
Tahn, you mentioned more payments more frequently, which is good for workers, but on the other side of the equation, that adds more pressure to small business operators. So they're moving from having to pay their super contributions quarterly, to aligning it to the pay cycle. So that adds to administration and adds to cash flow pressures. For small businesses, this means rethinking or payroll processes, improving cash flow management and ensuring compliance with the legislation. So increasing the frequency of super payments may strain cash flow pressures, particularly for businesses that don't proactively manage their cash flow.

So instead of setting aside funds for the quarterly payments, businesses must ensure super contributions are available every pay cycle. And for businesses that are operating on tight margins, this shifts demand towards careful planning and forecasting. So if you're not doing that careful planning and forecasting, and you're on a tight margin or your cash flow is tight, this could be an issue for you.

It also increases your administration work the more frequently you report. So more increased administration work. What you mentioned about employees. Employees will expect to see their super contributions hit their account within seven days. So small businesses need systems and processes to ensure compliance. The other thing to mention is the closure of the small business clearinghouse. So that is expected to close on 1 July 2026. Businesses that are using that clearinghouse will need to find an alternative.

So I've presented some of the negatives, but also it's an opportunity, it's an opportunity to modernise payroll systems and improve cash flow discipline as well. And also just keep in mind that non-compliance may trigger costly penalties as well.

Tahn Sharpe:
Yeah, I can imagine there that the cash flow issue is a really salient one for businesses. I might just pull the thread on that a little bit if I could. Richard, why is cash flow such a big issue on both sides? And how will it be affected by Payday Super beyond what Gavan just said?

Richard Webb :
Thanks, Tahn. And of course as Gavan has identified, this is a critical question. And I guess we can't emphasise enough that cash flow is of course one of the most critical requirements of business operations, and the Payday Super reforms will have a direct impact on it. So the current situation with superannuation contributions now is that businesses can hold onto superannuation contributions for up to three months before making payments, and this does allow for some additional flexibility that the businesses might have in managing cash reserves.

Under the new rules of course though, employers will need to pay super contributions within seven business days of each payday. And this means that approximately 12% of payroll costs will need to be paid out more frequently. But in addition to that, at the start of the 2026, '27 financial year, there will still be super contributions outstanding from the previous financial year, which also need to be paid at the same time. And this could strain cash flow, especially for businesses with tight margins or irregular income.

Tahn Sharpe:
Right, and this goes back to the pressure that Gavan was speaking to earlier. For businesses obviously of those, especially that are doing payroll at a certain time knowing that they've got superannuation payments that they can do at a different point in the cycle, that all needs to be coalesced into one function now, correct Gavin?

Gavan Ord:
That's right. And overall I think it's a positive and it will impose greater cash flow management discipline, but there will be a transition where it particularly will be challenging. As Richard said, you'll still have cash flow issues from the '25-'26 year as well as the '26-'27 year in July next year. So overall the long term I think it will be beneficial to business, but there definitely will be transition issues as businesses get across those cash flow pressures. And one of the reasons why certain groups were cautious about Payday Super was the cash flow pressure that will create on small businesses, but we think overall we'll have positive benefits over the long term.

Tahn Sharpe:
Just listening to you outlay those operational challenges, I can imagine, Kristen there champing at the bit to talk about how getting a robust payroll system in place becomes even more important. Kristen, what things should businesses need to consider leading up to implementation?

Kristen Yarbrough:
Businesses really need to have confidence that their superannuation payments are processed on time. To do so, they may need to move from their manual or outdated systems that they're currently using, and adopt software that integrates with super clearing houses and has enhanced STP reporting. Payroll system providers are already updating their software currently to be compliant with things like automation, error checking and direct integration with clearinghouses. The other thing to consider is how long contributions take from clearinghouses to funds.

Currently, with the new legislation, the deadline is moving to seven business days, which means that things need to move a lot faster through their super fund clearinghouses. There will be also error messaging that is being implemented, so their payroll systems may have integrations to provide that error messaging, to ensure that there are less rejections because they can deal with those errors earlier in the process. So yeah, the most important thing to do is to evaluate current systems, and that's both payroll systems and their business processes, and determine if they need any changes or upgrades.

Tahn Sharpe:
So what happens if, and this may well be a question for Richard because it's more of a regulatory side, but what happens if a business misses a payment?

Richard Webb:
A whole bunch of things happen if a business misses a payment, and it could be missed by the way for a bunch of different reasons. It could be missed because the business didn't make the payment, or the payment was short, or the payment was rejected by the fund. And remember of course under the new rules, the funds will have a three working day period in which they'll be required to either process or reject the contribution. And as a result of that, there'll be processes put in place for businesses to make sure that they actually get that problem fixed.

Now that can be fixed under a number of different ways, but if they don't get it fixed and the contribution made in full within seven working days, then what will happen then is that there will be a superannuation guarantee charge assessable on the amount that's outstanding, and that superannuation guarantee charge will be based on several different components, but most notably it will include notional earnings and also an administrative uplift charge.

Now the majority of the administrative uplift charge can be avoided if the business recognises that they've made a shortfall and completes a voluntary disclosure statement immediately on that. And the ATO will take that into account in revising the amount downwards. But also in order to minimise the amount of notional earnings that would apply to the payment, businesses really should get the error fixed as soon as possible, and the rest of the amount plus the earnings and any outstanding uplift paid on time.

Tahn Sharpe:
I see. So given the potential there for administration fees, as you say, and the need to get things fixed when they go wrong, Kristen, do you think the payroll systems or the industry in general is ready for this? Do providers need to change a lot to accommodate this need for speed?

Kristen Yarbrough:
Richard mentioned earlier that we have been aware of Payday Super for quite some time. It's just that the legislation has only recently been introduced, so payroll systems have been preparing for this for quite some time. So generally speaking, most will be ready to make those fast payments. It's just a matter of preparing the additional validations and things that we don't actually have the detail of yet. So they're the things that will be incorporated in, but certainly to make those super payments within the seven business days, the payroll systems are generally ready. Yes.

Tahn Sharpe:
Okay, well that's good news. And Richard, you mentioned a moment ago that the superannuation payments, there is a fee if they don't go through within the allotted time. But are there any circumstances where employers are exempt from the get-go?

Richard Webb:
There are actually going to be a few limited exceptions to the seven-day rule. Now of course, remember the seven-day rule was built around the idea that in normal circumstances contributions really should go through quite quickly. But of course there are obviously going to be situations where there are exceptions which make that kind of thing not normal circumstances.

And certainly when a new employee starts is one of those things. So in that situation when a new employee starts, employers may have up to 20 calendar days to make that initial super payment. And this allows time for onboarding new employees, and ensuring that super fund details that are provided either by the employee if they're exercising choice of fund, or if they're using the ATO's stapled fund service are correct. And that way of course that minimises the problems if there were errors in sending those details through with the first contribution.

But another exception can apply to situations such as out of cycle payments. So for example, bonuses or commissions, or when an employer makes a payroll payment outside of the normal cycle. In this case, the super contribution can be deferred until the next regular payday, which makes some additional flexibility for regular payments as well. But also in addition to that, there are provisions that have been put in place to ensure that where there are exceptional circumstances such as for example, system outages or natural disasters where delays might be unavoidable, that provides some additional flexibility as well. But it's important to note that those situations are very narrowly defined, and employers will need to document and justify any of these kinds of delays in order to avoid penalties.

Tahn Sharpe:
It's good to know there is some flexibility there, but they're obviously not going to let it be taken advantage of, I imagine.

Richard Webb:
That's right.

Tahn Sharpe:
Now one of the big events that's also taking place at the same time is the closure of the Small Business Super Clearinghouse. And Gavan, I think you spoke to this earlier, Kristen, can you maybe explain for our listeners what is happening here and how it might affect the businesses which currently rely on the service?

Kristen Yarbrough:
The Small Business Super Clearinghouse has already stopped taking on new members, that happened in October, and it's going to be stopping at the 1st of July 2026 in having payments processed through the clearinghouse. Basically, businesses that are currently using the Small Business Super Clearinghouse need to find alternate arrangements to make their payments from 1st of July. And so that includes if they're paying quarterly and their contributions from April through to June that are due in July, they either need to pay them early or that 1st of July payment will need to be paid through an alternate service.

Tahn Sharpe:
Obviously a lot to do between now and the end of June. Gavan, how can accountants and finance professionals help their clients prepare?

Gavan Ord:
First of all, accountants are well-placed to help small businesses navigate the transition to Payday Super, but also don't forget to talk to your payroll provider as well. For accountants, they can help with managing increased cash flow pressure, your systems and processes needs, and also handling the increased admin pressure. And also I think a lot of small business owners that are listening, you will hear from your accountant in the next few months trying to explain to you what Payday Super is, and obviously you'll also hear from your payroll provider as well.

And for accountants, they will help you better understand how well regular super payments affect your cash flow. They might even talk to you about is your current pay cycle, so you might do weekly, is that still fit for purpose through the cash flow pressure?

Obviously there are employment issues that are related to shifting of pay cycles, but they'll talk to you about that as well. And they'll also talk to you about whether do you need a cash buffer? So if you're on tight margins, do you need that little bit of extra cash just to manage the cash flow pressures?

Tahn Sharpe:
That cash flow part of it is obviously really important.

Gavan Ord:
They can also help you look at your payroll system's needs. They can help you identify a replacement to the Small Business Super Clearinghouse, which Kristen was just talking to you about, and they can help you train your staff that are handling payroll. But also it's really important to note that CPAs are not just there to do your tax return ambassadors, they're strategic partners in your business success.

Tahn Sharpe:
Very good. Well, thank you Gavan, as well as Kristen and Richard for your insights. I think this kind of discussion is something our members and the community more broadly really values. For our listeners keen to learn more, check out the show notes for links to CPA Australia and the ATO's online resources, and don't forget to subscribe to With Interest and share this episode with your colleagues and clients in the accounting and small business community. Until next time, thanks for listening.

Garreth Hanley:
You've been listening to With Interest, the CPA Australia podcast. To find out more about our other podcasts and CPA Australia check the show notes for this episode and we hope you can join us again for another episode of With Interest.