The reforms are finally law, but now the work to implement payday super begins.
This article explains why the race is now on to get the necessary systems ready in time.
Now the work begins
The PDS reforms start on 1 July 2026.
The reforms will require employers to pay their employees’ superannuation at the same time as salary and wages, instead of quarterly. Small business employers are most likely to find the cash flow challenges associated with PDS harder to navigate. With only four months to go, the race is on to get systems and employers ready for the most substantial change to superannuation in more than 30 years.
The legislative framework is finally in place. The focus now turns to the digital service providers (DSPs) who, understandably, have been waiting for the enacted law before proceeding and commercially investing time and money in the extensive work required to upgrade payroll and related systems in readiness for PDS.
Further:
Providing 18 months in lead time between the planned legislation of the changes in late 2024 and the start date of 1 July 2026 will also mitigate negative impacts on DSPs.
What’s still an issue?
A short runway to 1 July 2026
Concerns regarding the readiness of the system and employers from 1 July 2026 were frequently raised throughout consultation, particularly given that it was only a few months ago, the enabling legislation was introduced.
Even the ATO has acknowledged these concerns:
There is concern that employers will not have had sufficient time to deploy, test and embed changes within their payroll systems and business processes prior to Payday Super law commencing on 1 July 2026. This increases the risk that employers will be unable to fully meet the requirements to reliably have contributions processed and accepted by super funds in the Payday Super timeframes.
Practical approaches, including a minimum 12-month deferral or transitioning large employers to PDS before small business employers, were repeatedly recommended by the professional associations and other key stakeholders. Yet, the Government has remained firm on its announced start date of 1 July 2026.
The ATO will prioritise compliance resources in respect of employers in the high-risk (red) zone ahead of those in the medium-risk (amber) zone. The ATO will not have cause to apply compliance resources in respect of employers in the low-risk (green) zone.
- Green zone: the employer attempts to reduce their shortfall to nil by making sufficient on-time contributions, but some of or all the contributions were not received by the fund within the usual period, and the contributions are received by the fund and allocable for the employee’s benefit as soon as reasonably practicable.
- Amber zone: the employer does not meet the criteria to be in the green zone but has no shortfalls by 28 days after the end of the quarter in which the QE were paid. This would apply to an employer that makes sufficient contributions but does not change the frequency of contributions in line with PDS.
- Red zone: the employer does not meet the requirements to be in the green or amber zone and has one or more shortfalls by 28 days after the end of the quarter in which the QE were paid.
National Employment Standards
The National Employment Standards (NES) make up the minimum entitlements for employees in Australia. Superannuation is an entitlement under the NES. Entitlements to superannuation under the NES align with the superannuation laws, so an employer who complies with the SGAA also meets their obligations under the NES.
A breach of the NES means that most employees covered by the NES can take court action against their employer under Part 4-1 of the Fair Work Act 2009 (FWA) to recover unpaid superannuation, unless the ATO has already commenced proceedings in relation to that superannuation.
Whether the ATO investigates an employer that has not paid the minimum SG for their employees is completely independent from whether employees take legal action against their employer under the FWA for late or non-payment of superannuation.
Usual period
Eligible SG contributions received by employees’ funds and allocable to the employee’s account within seven business days after the QE day (the usual period) can reduce the shortfall for that QE day to nil. The usual period of just seven business days will be extremely challenging for employers.
Managing cash flow
Cash flow will be the single largest PDS issue for many small businesses to navigate. Moving from quarterly to as frequent as weekly payment obligations will likely place an enormous strain on cash flow.
Some employers are thinking of changing to less frequent payroll cycles. Transitioning to monthly payroll may improve cash flow, but employers must be aware that such a change may be prohibited by relevant awards, enterprise agreements or employment agreements. Some awards and agreements require employers to pay their employees weekly or fortnightly. A monthly cycle may not be permitted. Employers should seek independent advice before attempting to shorten the frequency of their payroll cycle to ensure they comply with relevant laws, awards and agreements.
Closing comments
With so many aspects to PDS, employers, tax professionals and bookkeepers must be across the new rules. While the DSPs are busy designing the new systems that will be needed, tax practitioners can start having the necessary conversations with their clients now. Employers can start to review their software, systems and processes to identify what is needed to be PDS-ready.
We have only a short runway to 1 July 2026.
