Table of Contents
Small Business Owner Faces Pressure from Upcoming ‘Payday Super’ Regulations
Daniel McGowan, the proprietor of Ipswich’s Lucky Cat Cafe, has voiced concerns regarding the imminent implementation of ‘payday superannuation’, set to take effect from 1 July 2024. This reform mandates that employees’ superannuation contributions be paid simultaneously with their salaries rather than on a quarterly basis, a transition McGowan sees as adding significant stress to his already challenged business framework.
In recent times, heightened operational costs—including soaring rents and wage increases—have strained the finances of small establishments like McGowan’s cafe, which employs three part-time staff members. Speaking with Yahoo Finance, he has been consulting with his accountant to strategise on how to accommodate the new superannuation obligations. This planning may involve McGowan reducing his staff’s hours and taking on more responsibilities to manage the financial demands effectively.
Impact of the Superannuation Changes
The Australian Taxation Office estimates that $5.2 billion in superannuation went unpaid during 2021-22, highlighting a pressing need for the reforms aimed at bolstering retirement savings for Australians. McGowan acknowledges the potential benefits of the changes for employees but affirms that they pose a new layer of complexity for small businesses. He expressed, “I need to have that cashflow right here and now to put into the business to go straight into superannuation.”
Despite these challenges, he does not anticipate a reduction in staff hours but is prepared to have discussions with his team about the evolving situation. Notably, McGowan, who also works in digital marketing and academia, generally does not draw a wage from his café.
Rising Costs and Business Struggles
Managing a café involves navigating numerous costs, and McGowan identifies rent as his primary expense, consuming 60-70% of his revenue. The impending minimum wage increase, effective from 1 July, and the rise of the superannuation guarantee to 12% will likely further squeeze his budget. Beyond this, he faces rising commodity costs: the prices of coffee beans, for example, continue to climb monthly.
Moreover, unexpected setbacks such as the recent closure of his Annerley café and disruptions from natural events like Cyclone Alfred have compounded McGowan’s struggles. He remarked, “Every single week is a new experience of, ‘Where am I going to get this money?’”
Business Survival Strategies
Despite the challenges, McGowan remains reluctant to increase prices for patrons, aiming to absorb minor cost hikes wherever possible, such as alternate milk and EFTPOS fees. Research by Employment Hero, which manages payroll for a significant number of businesses, reflects that a majority of small to medium enterprises perceive the payday super changes as impactful. Approximately 65% of surveyed businesses anticipate moderate to significant effects on their operations, with some indicating the need to build larger cash reserves to comply.
CEO of Employment Hero, Ben Thompson, supports the concept of payday super but underscores that the final delivery mechanisms must not unwittingly jeopardise small businesses. According to Thompson’s models, employers could need an additional $124,000 in working capital on average to adhere to new obligation stipulations, which might risk pushing them towards insolvency.
Regulatory Landscape and Financial Planning
Under the new regulations, employers are required to pay superannuation contributions within seven days following wage payments. Non-compliance will result in penalties, including the super guarantee shortfall charge, daily interest, and additional enforcement fees. While the Council of Small Business Organisations of Australia (COSBOA) endorses the concept of payday super, it advocates for a more gradual implementation rather than a rigid enforcement timeline immediately.
COSBOA’s Chair Matthew Addison emphasised the drawn-out nature of super payments, indicating that the current system’s clearing processes can take multiple business days. Suggestions have been made to extend the payment deadline to 10 days to mitigate potential logistical issues.
Conclusion
As McGowan contemplates his preparedness for these upcoming changes, he acknowledges that the preparation window has been available since the reforms were first announced in May 2023. “We’re just going to have to get it done,” he concluded, illustrating his resolve to adapt to the evolving regulatory landscape while maintaining his commitment to running a successful small business.
The upcoming ‘payday super’ legislation heralds a significant change for Australian businesses, particularly for small enterprises striving to remain financially viable amidst rising costs and changing regulations.
