Small Business Owner Faces Challenges Ahead of Payday Superannuation Changes
Daniel McGowan, owner of Lucky Cat Cafe in Ipswich, has expressed concerns over the upcoming introduction of payday superannuation, which will impose additional financial pressures on small businesses already battling rising operational costs. From 1 July 2024, superannuation will need to be paid to employees concurrently with their wages, shifting from the previous quarterly payment structure.
This reform, initially announced in May 2023, aims to address unpaid superannuation, which the Australian Taxation Office (ATO) reported amounted to $5.2 billion in the 2021-22 fiscal year. The shift to immediate payments could enhance retirement savings significantly, with projections suggesting that a 25-year-old worker converting from quarterly to fortnightly payments might accumulate $6,000 more by retirement.
Running a niche business that employs three part-time staff, McGowan has been consulting with his accountant on how to adapt to these changes. He anticipates potentially reducing staff hours and increasing his own on-the-ground work to manage cash flow. "I need to have that cashflow right here and now to put into the business to go straight into superannuation,” he remarked.
Despite being a small business owner, McGowan typically does not draw a wage from his cafe, relying on his income from digital marketing and academic teaching. He recently relocated operations from his Annerley cafe to focus on rebuilding his Ipswich establishment, where rent and wage costs consume a staggering 60-70% of total revenue.
Additionally, McGowan has faced various challenges this year, including closures due to Cyclone Alfred and a break-in, complicating financial stability even further. He lamented, “Every single week is a new experience… it is a big struggle.”
With rising costs, including escalating prices for coffee beans, McGowan is reluctant to raise consumer prices at the cafe, as he is committed to maintaining affordability. The broader sentiment in the small business community reflects similar concerns regarding the impending payday super changes. According to a survey by Employment Hero, which services over 300,000 businesses, 65% of small and medium enterprises believe these changes will have a considerable effect on their operations.
Ben Thompson, CEO of Employment Hero, acknowledged the potential benefits of these reforms but highlighted the possible risks to businesses, emphasizing that an average company might require an additional $124,000 in working capital to comply with the new superannuation timing guidelines. “That reduction in working capital could really push businesses to the edge of insolvency and put jobs at risk,” he explained.
Under the new regulations, employers will be required to pay superannuation within seven calendar days following the payment of wages, with significant penalties for non-compliance, including a potential 60% shortfall charge for missed deadlines.
The Council of Small Business Organisations of Australia (COSBOA) has advocated for a phased transition to these regulations, proposing an extension of the compliance deadline to allow businesses more time to adapt to the new system. COSBOA’s Chair, Matthew Addison, noted the complexity of the payment process, which involves multiple banking and clearing stages.
Although some parties argue that ample notice has been provided since 2023 and that businesses should be prepared, McGowan acknowledged the pressure and urgency of implementing the upcoming changes. “We’re just gonna have to get it done,” he stated.
As businesses brace for these adjustments, it’s evident that the new payday super reforms will reshape the financial landscape for many SMEs across Australia, impacting operations and potentially leading to significant changes in employment dynamics.
