25/09/2024

On 18 September 2024, Treasury released a fact sheet on the payday super reforms that confirms the government is still intending to proceed with those reforms. The reforms are still expected to take effect from 1 July 2026. Consultation and drafting will take place during the remainder of 2024.

Background

In May 2023, the government announced it was intending to pass legislation that would require employers to pay superannuation at the same time as paying staff salary and wages, starting from 1 July 2026. This reform has come to be known as ‘payday super’. 

Payday super differs from the status quo which requires employers to pay superannuation contributions on behalf of their staff within 28 days after the end of each quarter. Payday super is intended to benefit employees in two ways.

  • Since contributions will be paid quicker, and more frequently they’ll commence earning an investment return for employees sooner. Government estimates indicate this could lead to the median 25-year-old receiving an additional $6,000 or 1.5% in retirement. 
  • The focus on prompt remittance of superannuation contributions (and associated improvements in system functionality) is expected to lead to fewer instances of employers failing to pay staff superannuation. In 2020/2021, the ATO estimates approximately $3.6 billion of staff super was never paid.   

The government also indicated the payday super reforms would have something to say about how superannuation funds are advertised to new employees when they’re onboarded after starting new employment. Since the introduction of ‘stapling’, when employees start new employment, contributions will continue being paid to their existing superannuation fund (for example their ‘stapled fund’) unless they choose another superannuation fund. Stapling was intended to reduce the proliferation of superannuation accounts, thereby reducing instances of people paying fees and insurance premiums to multiple superannuation funds. 

The government has become aware of business practices which involve new employees being onboarded via digital platforms enabling them to choose a superannuation fund from a range advertised on the digital platform. If the new employee chooses one of those funds, their future superannuation will be sent to that fund, even though they may already have a superannuation account with another fund. This could lead to fees and insurance premiums being paid to multiple superannuation funds. Some say this conflicts with the purpose of the stapling reforms, whereas others would say that stapling was always intended to allow employees to choose a superannuation fund if they wanted to.

Update regarding payday super

Payday super looks set to become ‘payday+7 super’ according to the Treasury fact sheet released on 18 September 2024. In other words, superannuation will have to be received by the relevant superannuation fund within seven days after payday. In practical terms, most employers would be wise nevertheless to pay superannuation contributions on the same day as payday, to ensure there is time for the contributions to be received by the correct fund, allowing for errors, processing delays and for funds to be passed on by clearing houses and received by the correct fund.

Key elements of the reform include: 

  • Timely contributions: Super contributions will have to be received by the correct super fund within seven days after payday.
  • Error refunds: Super funds will be required to refund contributions received in error within three days, allowing employers the opportunity to resend contributions to the correct fund within a designated seven-day time frame.
  • New starters flexibility: Extra time will be allowed for new starters within their first two weeks with their new employer.

Update regarding restrictions on advertising superannuation funds to new starters 

The Treasury fact sheet reveals key details about how the government intends to regulate this new business practice.

  • Treasury is hinting new starters would be told about their stapled fund where they already have an account. It is unclear whether it would be compulsory for the stapled fund to be named, or whether this would be an optional feature. If this were to be compulsory, depending on any requirements as to how prominent details regarding the stapled fund must be (including any associated consumer warnings), this could have an impact on employee behaviour and may lead to significantly fewer employees choosing a fund which is not their stapled fund.
  • Only MySuper products which have successfully passed the APRA performance test will be eligible for advertising. It is unclear whether this means all MySuper products are eligible to be advertised, except for those that have failed the APRA performance test two years in a row, or whether a MySuper fund that failed the most recent year’s APRA performance test would also be ineligible to be advertised. If the latter, this would represent a subtle creep in the reach of the APRA performance test. Under the APRA performance test regime, a product is only prohibited from accepting contributions from new members if it has failed the APRA performance test two years in a row. This reform would be going further than the existing regime if there are adverse consequences after failing the APRA performance test in a single year.
  • Choice products will not be permitted to be advertised in this context. It’s interesting the advertising of choice products would be restricted given the focus in recent years on choice of fund and since even the stapling regime is overridden by consumer choice.

The above changes will potentially impact providers of employee onboarding platforms and the superannuation funds that advertise on those platforms. Some superannuation products will not be able to be advertised at all and some may be chosen less often, impacting the commercial benefits (and superannuation fund take up) of those advertising arrangements.

It remains to be seen how the government would legislate the requirement that only MySuper products can be advertised. Superannuation funds that have MySuper products also have non-MySuper products. An advertisement of that fund would generally be considered an advertisement for its MySuper products and its non-MySuper products (for example choice products) and it is unclear whether that is permitted. Depending on how it is legislated, it is possible a fund that had a MySuper product could advertise itself (including its choice products) whereas a fund which had no MySuper product could not advertise in that context at all.

Proposed penalties

Employers which fail to meet the seven-day deadline would face a range of financial penalties including: 

  • Payment of the shortfall
  • Interest (currently 11.36% per annum) 
  • An administrative penalty of up to 60% (this will be reduced in instances of voluntary disclosure) 
  • Further penalty for not paying the assessment within 28 days, reaching up to 50%.

Employers may find some relief in knowing the first three penalty components are expected to be tax deductible. However, as these reforms are still under consultation and legislative review, they remain subject to change.

With a target implementation date of 1 July 2026, further developments will unfold as consultation and drafting continue through the end of the year. 

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