The Australian Taxation Office (ATO) has urged employers to prepare for a significant shift in superannuation payment practices commencing from July 1. From that date, superannuation must be paid concurrently with employee wages.
This new obligation means employers must process the mandatory 12% superannuation contribution on a weekly, fortnightly, or monthly basis rather than the previous quarterly schedule. The reforms, which have been in development for over three years, will impose penalties if super contributions are not transferred to super funds within seven days of the payday.
Emma Rosenzweig, the ATO’s deputy commissioner, noted that there is a common misconception that employers should wait until July 1 to commence these new payment practices. She advises employers to start making preparations well in advance of the implementation date.
Key Advice for Employers:
Employers are encouraged to review their cash flow, check the timing of superannuation payments, and ensure their payroll software can accommodate the changes. Rosenzweig mentioned that around 45% of employers are already paying superannuation more frequently than quarterly.
Research conducted by MLC revealed that 80% of Australians remain unaware of the impending payday super reform, and 85% do not know when the change takes effect. Moreover, 55% of employers lack confidence in their readiness to comply with the new requirements.
The primary aim of this reform is to combat unpaid superannuation. The ATO estimates that $6.25 million in super went unpaid during the most recent financial year, and the change should result in employees receiving more timely and frequent super contributions.
Myths Clarified by the ATO:
The ATO is also addressing misconceptions about payday super. One such myth is that employers can arbitrarily change their employees’ wage payment frequency. However, the frequency of salary payments is determined by employment contracts, awards, or enterprise agreements. Rosenzweig clarified that the new rules pertain only to when superannuation must be paid, not how frequently wages are disbursed.
Payments will only be recognised when received by the respective super fund, not merely when submitted by the employer. Therefore, it’s crucial for employers to verify processing times with their clearing house and super funds to comply with the deadlines, in addition to consulting with their payroll providers.
The ATO suggests that employers initiate super payments on the same day as wages to ensure they have ample time to meet the new demands.
Rosenzweig reassured that the majority of employers want to comply with the payday super reforms and noted that those who make genuine errors and act quickly to rectify them are unlikely to face immediate compliance actions from the ATO in the first year.
Additionally, the ATO will discontinue its Small Business Superannuation Clearing House service after June 30, meaning employers must transition to alternative arrangements before this date. They won’t be able to access transaction history from the clearing house post-deadline.
Employers are encouraged to check that their current payroll software has super processing capabilities, to simplify the transition.
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