Nuances of Payday Super

Let’s start with when superannuation has to be paid on behalf of employees. The law does not impose a positive obligation on employers to pay SG contributions for employees; rather, the law makes the employer liable for a tax (the SG charge) if they don’t. Further, the new law does not require employers to actually pay superannuation on payday. Rather, within the usual period (explained below), the fund must receive an eligible contribution and have sufficient details to be able to allocate it to the employee’s account.

The usual period is generally a period of seven business days after the qualifying earnings (QE) day, but can be a longer period of 20 business days in the following cases:

• onboarding a new employee;

• contributing to a different fund for the first time; or

• where the ATO issues an exceptional circumstances determination in the case of natural disasters, or widespread information and communications technology outages.

Hereafter, for brevity, this article will refer to the seven-day and 20-day periods collectively as the ‘usual period’. 

To avoid an SG base shortfall for a QE day, employers need to allow sufficient time for the payment and the associated SuperStream data to reach the fund by the end of the usual period. While payment on payday is not stipulated in the law, doing so will be the best practice to help ensure contributions are received on time.

Employers will not receive confirmation that contributions were made on time, but if they pay on payday and the contribution is not rejected within three business days, it can be assumed to be on time.

Late payments

If an employer doesn’t make eligible contributions within the usual period, they will have an SG base shortfall. Employers can make contributions to reduce their base SG shortfall by making a late contribution before the end of the late period. The late period starts after the end of the usual period for the QE day and ends before the ATO assesses the SG charge.

If a shortfall remains at the end of the late period, the employer has a final SG shortfall that cannot be rectified through late contributions. The Commissioner will assess the SG charge, which should be paid promptly to avoid late payment penalties and general interest charges.

Reduction of administrative uplift amount

The existing mandatory SG statement (which constitutes an assessment) will be replaced by a voluntary disclosure statement (VDS). Lodging a VDS does not amount to a self-assessment of the SG charge; rather, it notifies the ATO that the employer has an SG shortfall.

Although optional, employers are encouraged to disclose shortfalls promptly. A VDS can reduce the 60% administrative uplift amount (AUA) by up to 40 percentage points, in accordance with recently released regulations. Earlier disclosure results in greater remission.

No remission of the AUA is available where the ATO has issued an assessment within the previous 24 months (starting from 1 July 2026) and the employer did not make a VDS.

New deductibility

For QE days occurring on or after 1 July 2026, the SG charge, including the AUA, will be deductible for income tax purposes. This represents a reversal of the current treatment of the quarterly SG charge, which remains non-deductible.

Late payment penalties and general interest charges imposed on unpaid SG charges will be non-deductible.

Order of payments

Under PDS, SG contributions are generally applied to QE days in the order they are received by the fund. As a result, a contribution intended for a particular QE day may be applied to an earlier QE day with an existing shortfall, even where the employer is unaware of that shortfall. This may leave a shortfall for the later QE day.

A limited exception applies to contributions made between 1 and 28 July 2026, which are applied first to any outstanding quarterly SG obligations for the June 2026 quarter. Any remaining amounts may then be applied to QE days on or after 1 July 2026.

In addition, PDS permits contributions to be made up to 12 months in advance of a QE day. For example, a contribution made in June 2026 could be applied to a QE day in July 2026.

Potential excess concessional contributions

Without transitional relief, the introduction of PDS may result in employees exceeding their concessional contributions (CC) cap due to changes in the timing of employer contributions.

For example, an employee earning $240,000 with annual SG contributions of $28,800 could have excess CC of $3,500 in either of the following scenarios:

• June 2026 quarter contributions of $7,200 are paid in July 2026, in addition to payday contributions for QE days in 2026–27; or

• June 2026 quarter contributions of $7,200 are brought forward and paid in June 2026, on top of quarterly contributions already made in 2025–26, including those for the June 2025 quarter.

The Government has announced that it will ‘introduce technical amendments to ensure individuals do not exceed their concessional contributions cap in 2026–27 from their SG contributions as a result of the transition from the quarterly [SG] system to the new Payday Super system.’ However, the Government does not intend to provide any transitional relief for individuals who exceed their CC cap in 2025–26 due to the transition to PDS.

Maximum contribution base

Currently, the maximum contribution base (MCB) is applied on a quarterly basis. Earnings above the quarterly MCB do not attract an SG charge if contributions are not made. Under PDS, however, the MCB will be applied as an annual limit. Once an employee’s MCB is exceeded in a financial year, any subsequent QE of that employee for that year are disregarded when calculating an SG shortfall.

For 2025–26, the MCB is $62,500 per quarter, equating to $250,000 annually. From 2026–27, the MCB will instead be calculated by effectively dividing the CC cap by the current charge rate of 0.12. With the CC cap indexed to $32,500 for 2026–27, the MCB will be $270,833.

A related change affects employer shortfall exemption certificates (ESECs). Currently, ESECs allow high-income earners with multiple concurrent employers to opt out of receiving SG contributions from one or more employers for a quarter, to avoid exceeding the CC cap. Under PDS, ESECs will also be available where an employee has consecutive employers within the same financial year.

The interaction between an annual MCB and ESECs will add complexity to salary packaging arrangements. For higher-paid employees, the MCB may be reached much earlier in the financial year than under the current quarterly framework.

Employees on remuneration packages inclusive of SG may choose to provide a new employer with an ESEC once the MCB is reached, halting further SG contributions for the remainder of that financial year. In many cases, they would be better placed negotiating an increase in salary so that their overall remuneration package remains unchanged.

By contrast, employees on packages exclusive of SG may be reluctant to provide an ESEC, as stopping SG contributions would not increase their salary. This may result in excess contributions tax, which some high-income earners may consider acceptable given that those amounts, if paid as salary, would otherwise be taxed at the top marginal tax rate.

Payday Super and self-managed superannuation funds

Employers can confirm whether a fund is complying by using Super Fund Lookup (SFLU) or obtaining written confirmation from the fund’s trustee.

In relation to employees’ SMSFs, employers should be aware that if an SMSF’s annual return is more than two weeks overdue, its SFLU status changes to Regulation details removed. Once this occurs, SuperStream will reject SG contributions to that fund. Upon notification, employers may have only a few business days to redirect the contribution to another complying fund before the end of the usual period.

PDS increases the need for vigilance in monitoring the complying status of employees’ SMSFs. While checking a fund’s status every QE day is hardly practical, employers must still meet their choice of fund obligations, even where the increased payment frequency makes SMSFs less attractive from an administrative perspective.

Although an employee’s chosen fund takes priority, a rejected contribution does not discharge the employer’s SG obligations. Where an SMSF contribution is rejected and cannot be promptly corrected, the employer must either:

• make a stapled super fund request with the ATO and pay SG contributions in accordance with the stapled super fund response provided by the ATO; or

• make the contribution to the employer’s default fund.

Meeting these requirements within the usual period may be challenging in some circumstances.

Engaging contractors

Employers are required to meet SG obligations for independent contractors who are engaged primarily for their labour, as these contractors are treated as employees for SG purposes. Under PDS, the usual period for contributions also applies to QE paid to contractors.

As contractor payments are often processed through accounts payable rather than payroll, employers should review their systems and consider paying contractors and their superannuation through STP-enabled payroll software. And don’t forget that SG is calculated on the full amount paid to the contractor, including any disbursements.

Closure of the ATO’s small business superannuation clearing house

As part of the PDS reforms, the ATO’s SBSCH will close from 1 July 2026. Employers who currently use the SBSCH will need to transition to a commercial clearing house or appropriate payroll software.

After 11:59pm on 30 June 2026, access to SBSCH data will cease and user logins will be disabled. The ATO has published guidance on how to download your employee payment transaction history and employee details, as well as available alternatives, and employers should commence the transition properly.

Changes to SuperStream

SuperStream is a standard that requires all employers to electronically submit superannuation contributions and associated data to funds. To support PDS, SuperStream contributions messaging will be upgraded to version 3 from 1 July 2026.

The upgrade introduces a new member verification request (MVR), allowing employers’ payroll or software solutions to validate an employee’s fund details before contributions are made. If the fund cannot match the employee details to accept contributions, the response will identify the issue, enabling the employer to resolve it and resubmit the contribution within the required timeframe.

In addition, the national New Payments Platform (NPP) enables transferred funds to be available to the recipient on a near real-time 24/7 basis. All superannuation funds must be able to receive NPP payments from 1 July 2026, with some capable of doing so earlier. Employers or their digital service provider may choose to use NPP when making contributions.

ATO compliance position

PCG 2026/1 explains the factors the ATO will consider when deciding how to apply its compliance resources to investigate employers who try to do the right thing from 1 July 2026 to 30 June 2027. As set out in the PCG, the ATO will prioritise employers considered to be high-risk (red zone) ahead of those in the medium-risk (amber zone).

Employers assessed as low risk (green zone) are unlikely to be subject to ATO compliance activity or an SG charge assessment for QE days that occur in 2026–27. However, this classification does not provide absolute certainty.

Separately, the PCG does not limit employees’ rights to pursue recovery action under the National Employment Standards. The ATO’s compliance approach operates independently of any action an employee may take under the Fair Work Act 2009 (Cth) for late or non-payment of superannuation.

ATO releases draft rulings on Payday Super

On 18 March 2026, the ATO released a suite of draft law companion rulings (LCRs), providing guidance to employers on key aspects of PDS, including:

• LCR 2026/D1 Payday Super: qualifying earnings;

• LCR 2026/D2 Payday Super: eligible contributions;

• LCR 2026/D3 Payday Super: calculation and assessment of the superannuation guarantee charge; and

• LCR 2026/D4 Payday Super: application and transitional provisions.

The draft guidance helpfully explains crucial elements of the new regime and offers valuable insight into the ATO’s interpretation of the law. Public consultation on the draft guidance is open until 1 May 2026, with further refinement expected following stakeholder feedback.

Closing comments

With limited time remaining to prepare for Payday Super, advisers and clients must have a clear understanding of the new terminology, system requirements and timing obligations. Practitioners should engage early with clients to discuss cash flow implications and ensure clients’ staff are appropriately trained.

The ATO has a suite of guidance products available to assist practitioners and clients, including this video from 10 March 2026, designed for tax practitioners.

Robyn Jacobson, tax advocate and specialist