From 1 July 2026, employers will be required to pay employee superannuation contributions in line with each pay cycle, rather than the existing quarterly cycle, resulting in employees being paid their superannuation contribution within seven business days of payday.
This reform is known as Payday Super and is intended to improve compliance and ensure employees receive their superannuation entitlements in real time. Clearly this is a recognition of the significant number of recalcitrant businesses paying superannuation entitlements late (or not paying such amounts for significant periods), and the material shortfalls that can occur in an insolvency scenario for an employee’s superannuation balance.
As a result of these reforms, employers that once relied on delayed payment of their employees’ superannuation to bolster their cash flow position will need to closely consider their cash flow practices in the coming months. Treasury has acknowledged the practice of using superannuation as a “cash-flow tool” and opined that the new Payday Super regime will likely result in an influx of insolvencies given the ubiquitous use of this “tool”.[1] Research conducted suggests that more than one in five small and medium enterprises (SMEs) could struggle with the cashflow impact of the new Payday Super regime due to increased cash-flow pressure and the cost of making more frequent superannuation guarantee payments.[2]
Practically, these reforms will mean businesses with irregular cash flow and large workforces, such as those in hospitality, retail and construction, and rely on superannuation as a “cash-flow tool” are likely to face increased operational and liquidity pressures. These changes will also have flow-on implications for directors seeking to rely on the Safe Harbour regime under the Corporations Act 2001 (Cth) (Corporations Act).
Background & Incoming Changes
Currently, employers are generally required to pay superannuation within 28 days after the end of each financial quarter. This framework has led to significant compliance issues. In large scale insolvencies, for example, substantial amounts of superannuation often remain unpaid, leaving employees with no option but to forego their outstanding super in almost all circumstances given there are likely insufficient assets in the liquidating company to provide them with a dividend and the Federal Government’s Fair Entitlement Guarantee (FEG) does not cover superannuation shortfalls.
Under the new Payday Super regime, employers must remit superannuation contributions to an employee’s super fund within seven business days of each payday (with limited exceptions). Several other changes are also proposed to tighten compliance for payment of superannuation by employers – more information on these changes can be found on the Australian Taxation Office (ATO) website
Impact on solvency
For many employers, particularly SMEs, the move to Payday Super will require significant operational adjustments. As the reform is replacing a quarterly lump-sum obligation with a continuous requirement, superannuation must now be factored into every pay run. Companies operating in industries where revenue significantly fluctuates will be at greater risk of insolvency as a result of the new regime. Employers in those industries should consider their position now (and in the coming months) to determine if they will risk falling insolvent as they can no longer rely on money previously allocated to quarterly superannuation contributions to support cash flow.
Employers concerned with their solvency and the impact of this legislation should prepare cash flow forecasts to highlight any cash shortfalls. We recommend that this exercise is conducted well in advance of 1 July 2026.
Effect on Safe Harbour protections
The Payday Super reforms will also limit the number of directors who may be able to rely on the protections provided for as part of the Safe Harbour regime pursuant to section 588GA of the Corporations Act. The Safe Harbour regime allows directors to not be found personally liable for insolvent trading claims should they meet certain criteria. One critical entry hurdle to reliance on the Safe Harbour regime is that employee entitlements, including superannuation, are paid up to date.
As restructuring experts, one of the key things we see limiting a director’s ability to rely on the Safe Harbour protections is the failure of the businesses they govern making superannuation payments on time. Directors struggling to ensure compliance today will almost certainly be more at risk in the future once the Payday Super regime is in place. Directors that are currently relying on Safe Harbour should also be alive to the fact that they need to remain vigilant in paying superannuation contributions on time, given from 1 July 2026, they may no longer be eligible for Safe Harbour if they fail to satisfy the Payday Super regime.
Compliance approach
As part of the transition to the new regime, the ATO has released a Draft Practical Compliance Guideline PCG 2025/D5 (PCG)[3] which sets out the proposed compliance approach for the first year of the Payday Super reforms. The ATO has advised that employers will be categorised as being low, medium or high risk depending on their payment behaviour and responsiveness to errors. The PCG gives various examples of low, medium and high-risk employers.
Low-risk employers will for example, make genuine attempts to meet their superannuation obligations on time and rectify any payment failures as soon as reasonably practicable. An example of a low-risk employer in the PCG includes one that has taken appropriate steps to work with a super fund in circumstances where a superannuation contribution was paid on time, yet those contributions were (for whatever reason) rejected by a super fund. Those employers will not be subject to ATO’s review for compliance with the Payday Super reforms.
A high-risk employer will be one who fails to amend payment of superannuation contributions to align with the Payday Super regime. They may also be an employer who makes insufficient contributions for an employee by failing to classify certain payments as qualified earnings.
Companies that fail to comply with the Payday Super reforms by not paying a superannuation guarantee charge (SGC) within 28 days of the charge becoming payable, will receive a notice from the Commissioner to pay the specified amount within a specified period (Notice Period). If the SGC is paid within the Notice Period, the company will not be liable for a further administrative penalty. However, if the company:
- pays the SGC within 24 months commencing after the Notice Period expires, an administrative penalty of 50% of the SGC will also be imposed on the company; or
- pays the SGC after the 24 month period expires, an administrative penalty of 100% of the SGC will be imposed on the company.
Employers should therefore be mindful of not continuously falling afoul of the new regime given the penalties can be significant over time.
Conclusion
The introduction of Payday Super represents a significant shift in employer obligations and payroll compliance. While the reform is expected to enhance employee outcomes and superannuation transparency, it could also place considerable pressure on employers’ cash flow, systems and governance.
Directors of distressed companies or companies with fluctuating revenue should be aware of their new obligations effective 1 July 2026 and the inability to rely on the Safe Harbour regime if they do not make superannuation payments on time.
Employers are encouraged to begin preparing now for the Payday Super reforms by:
- assessing their payroll systems to ensure compliance and that payments will be made per the new regime on time
- updating internal controls to support timely super payment
- building cash-flow forecasts that incorporate more frequent super payments
- reviewing whether their current pay cycle structure requires any changes.
For directors that consider the Payday Super changes will significantly impact their cashflow and solvency position in the coming months, please contact Nicholas Edwards, Head of Restructuring and Insolvency or Tim Zahara, Partner – Workplace and Employment.
[1] Treasury Laws Amendment (Payday Superannuation) Bill 2025 (Cth) [and] Superannuation Guarantee Charge Amendment Bill 2025 (Cth)).
[2] MYOB Team, How Payday Super creates an advisory opportunity for accountants and bookkeepers <https://www.myob.com/au/blog/payday-super/#:~:text=In%20short%2C%20it%27s%20not%20business,first%20person%20they%20turn%20to.>.
[3] Australian Taxation Office, Draft Practical Compliance Guideline PCG 2025/D5 <https://www.ato.gov.au/law/view/document?DocID=DPC/PCG2025D5/NAT/ATO/00001&PiT=99991231235958>
