Understanding Payday Super: What the reform means for you

Superannuation has been a hot topic since the announcement of the 2023-24 Federal Budget, and one concept that’s generating a lot of discussions is ‘payday super’.

The government has introduced payday super to address the discrepancies that often arise for individuals in lower-paid, casual, and insecure jobs when it comes to their superannuation. These individuals often face challenges compared to those in more secure positions, as their super is paid less frequently.

Currently, employers are required to contribute 10.5% of employee wages to their superannuation every quarter, even if employees are paid more frequently, such as on a fortnightly or monthly basis.

The idea behind payday super is to align the payment of superannuation with regular pay cycles. Instead of paying super quarterly, employers will be expected to pay it to employees on their designated paydays. This reform is set to take effect from July 2026.

Aligning superannuation payments with wages and salaries will result in increased retirement incomes through compounding returns. To illustrate, consider a 25-year-old earning an average income who currently receives their super quarterly but gets their wages fortnightly. With payday super, they could potentially be up to $6000 or 1.5% better off at retirement.

More frequent super payments can also benefit employers by ensuring smoother payrolls with fewer long-term liabilities on their books. Additionally, it helps protect employees from exploitation by unscrupulous employers.

Unpaid super is a pressing issue within the current superannuation system, with an estimated $5 billion missing from Australian employees’ accounts.

Presently, Australian employees are vulnerable to exploitation if their employers fail to make the required superannuation contributions. Often, these workers rely on intervention from the Australian Taxation Office (ATO) to recover their lost super. However, the ATO can only retrieve up to 15% of the owed superannuation in general.

Another significant concern is the gender gap in superannuation, which this reform may help address. Women are often disproportionately affected by unpaid or missing super due to employment gaps, caregiving responsibilities, lower pay, or taking maternity leave. As a result, it’s estimated that women may earn $135,000 less than their male counterparts over their working lives. Payday super could potentially spur further actions to improve retirement outcomes for women, such as paying super on paid parental leave.

It’s worth noting that some employers may face cashflow challenges when adjusting to simultaneous superannuation and payroll payments. However, a three-year notice has been given to allow those affected to adapt their cashflow practices and make necessary arrangements. To ensure compliance with the new requirements set to be implemented in 2026, it’s advisable to update payroll systems ahead of time.

If you’re uncertain about where to begin, consider reaching out to our trusted KMT adviser. They can provide guidance and support in navigating the complexities associated with payroll.

We’re here to assist you with any questions or concerns you may have.

Contact our KMT adviser for discussion!

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.