Thursday, June 8, 2023

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Australian Businesses To Pay Super Every Payday By 2026

The Australian Federal Government has announced that from 1 July 2026, employers will be required to pay their Superannuation obligations to employees every payday.

Currently, an employer is only obligated to pay super contributions to their employees every quarter. Whilst this can ease cash flow pressure for some businesses, it has also led to incidents where employees are not receiving their rightful superannuation payments on time.

The incoming reform is designed to reduce the amount of unpaid super payments in arrears, which the Australian Taxation Office (ATO) has estimated to be over $3 billion during the 2019-2020 financial year and approximately $29 billion over the last six years.

Harsher penalties may also be on the horizon for employers that fail to pay their worker’s superannuation on time, according to Assistant Treasurer Stephen Jones who stated, “We think unpaid super should be treated in the same way as wage theft”.

 

GOOD FOR EMPLOYERS…

The transition to payday superannuation contributions is expected to make employers’ payroll management process smoother, with fewer liabilities in unpaid super obligations building up on the books.

With the mandatory Super Guarantee (SG) rate set to increase to 11.0% on 1 July 2023, and expected to rise 0.5% each year until capping at 12.0% in 2025, the reform is intended to help employers track and fulfill their super contribution obligations to their employees.

The Federal Government has assured businesses that are worried about the impact on their cash flow that they will collaborate with industry representatives and engage in conversations about safety protocols.

 

AND EMPLOYEES

With superannuation payments being made more frequently into employees’ superannuation accounts, the reform is also designed to boost Australians’ retirement incomes, due to:

  • Employees are less likely to miss out on their payments given the visibility of their superannuation in each pay cycle

  • Increasing the frequency of payments enables superannuation contributions to accumulate for a longer period, allowing for greater compounding growth

It is estimated that a 25-year-old employee who now receives fortnightly superannuation payments (instead of quarterly) would receive a 1.5% increase in their superannuation balance by the time they retire.

 

The reform is expected to have the biggest impact on employees in blue-collar industries such as hospitality, retail, and construction, where cases of unpaid superannuation are most common.

It should be noted that many Australian employers are already paying their Employer Super obligations in each pay run and meeting their SG obligations. For all other entities, the Federal Government has said the July 1st, 2026 transition date will allow plenty of time for employers, super funds, and payroll providers to make the necessary changes.

 

Next Steps

To find out more about these changes and how they can complement your business’ broader employee value proposition, please reach out at any time.

 

Terry Le

Client Manager – Global Benefits

terry.le@honan.com.au

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