Payday superannuation reform: what do employers need to know?
09 February 2026
In short
The Federal Government has amended the superannuation guarantee legislation so that superannuation is payable by reference to paydays rather than quarterly. These changes commence on 1 July 2026.
The superannuation guarantee amount remains calculated at 12% of the ‘qualified earnings’, a new term which replaces ‘ordinary time earnings’.
To avoid liability to the superannuation guarantee and penalties, an employer must make sufficient eligible contributions within the required time.
The details
From 1 July 2026, employers will have a superannuation liability each time an employee is paid qualifying earnings (QE). To avoid liability to the superannuation guarantee and penalties, an employer must make sufficient eligible contributions within the required time.
QE is a new term which replaces ‘ordinary time earnings’ and includes payments that are part of the current ordinary time earnings base.
An eligible contribution is a contribution that is not only made by the employer, but the trustee is also able to allocate it within the fund for the benefit of the employee.
The superannuation guarantee amount is calculated at 12% of the QE paid on the ‘QE day’, this being the day when an employer makes a payment of QE to the employee.
The eligible contribution must be received by the fund within the ‘standard periods’, the main periods being:
- the ‘usual period’, this being the period within seven business days after the employee’s QE day, or
- up to 12 months in advance.
The superannuation guarantee charge (SGC) is imposed on an employer’s superannuation guarantee shortfall for a QE day. An employer will have a superannuation guarantee shortfall if it has one or more (individual) superannuation guarantee shortfalls. The employer will have an individual superannuation guarantee shortfall if the superannuation contributions for the QE day made during the standard period are less than the individual superannuation guarantee amount for the employee for the QE day. The superannuation guarantee shortfall is the total of the individual final superannuation guarantee shortfalls for the QE day, plus the total of the individual notional earnings, the administrative uplift and any choice loadings.
Unlike the current legislation, the superannuation guarantee shortfall can be reduced by eligible contributions made in the ‘late period’.
Change in the way contributions and penalties applied
As well as on time contributions, eligible late contributions are tax deductible. The SGC, which includes notional earnings, are now tax deductible although penalties are not deductible. Penalties include the general interest charge (GIC) and assessment penalties.
There is also a new penalty regime. There is an administrative uplift, which is 60% x total individual final superannuation guarantee shortfalls. This is subject to reduction in the Regulations, which are yet to be released at the time of this article.
The exposure draft regulations provided as follows:
- there is a reduction of 20% when an employer does not have an ATO initiated assessment in the previous 24 months, and lodges a voluntary disclosure statement, and
- there is a reduction of up to 40% when an employer lodges a voluntary disclosure statement regardless of whether the employer has an ATO initiated assessment in the previous 24 months, so long as there is no ATO initiated assessment for the amounts in question.
Where an employer meets the criteria these reductions in penalties are cumulative.
Notices to pay can be issued if the SGC is unpaid the day after the 28 day period that started on the day the charge became payable. This can be amounts of the SGC assessed on the superannuation guarantee shortfall and the GIC. The Notice must specify a date for payment ending 28 days after the day specified in the Notice, and if any amount is unpaid on the day specified in the Notice an assessment is to be issued. The assessment will include penalties for failing to pay in accordance with the Notice. There is a sliding scale depending on whether it is a first Notice in the last 24 month or not. If a Notice was issued within 24 months, the penalty is 50%, and otherwise the penalty is 25%. However, the penalty is nil if exceptional circumstances exist.
Every employer will need to understand the consequences of the changes, especially where contributions are returned because they are not able to allocated as required.
Maximum contribution base
This is to be applied on an annual basis rather than quarterly.
Defined benefits
The provisions that apply to defined benefit members who are unable to choose a fund remain unchanged.
Fund choice
The penalty cap for failure to comply with fund choice increases from $500 per quarter to $1,200 per payday.
Change in penalty
Prior to these changes, the superannuation guarantee (which includes notional earnings) was not deductible. Non deductibility of tax penalties does not change.
The new approach is to encourage payment before assessment issues. Once payment is late, there is an automatic increase in the amount payable. The shortfall includes notional earnings on the base amount, regardless of the amount outstanding from time to time, plus the administrative uplift.
In the case of late payment, if an employer does not want to wait for a Notice from the Commissioner, the employer will need to calculate the administrative uplift to work out the amount to pay to stop the notional earnings accruing, as well as calculating the notional earnings. There will be a need for calculation tables to assist in this calculation.
Transitional issues
The first quarter in financial year 2027 will have the old obligation for the last quarter of 2026, and the first paydays of 2027. Contributions may exceed the concessional contribution cap because of the double up. This has not been addressed in the legislation.
New timeframes for trustees handing employer contributions – draft Regulations
The trustee must validate the new member information in two business days (down from three). If validation fails, the funds have two business days (down from five) to request the information. Contributions that cannot be allocated must be refunded within three business days. Funds must allocate within five business days.
Under the current legislation, the trustee has 30 days, which is usually enough time to correct errors without having to refund contributions.
If contributions cannot be allocated in three business days of the request of the information, the contributions must be refunded.
Amounts refunded are deemed not to have been contributed. This puts the employer in breach unless they can be recontributed and allocated within seven business days of the payday, noting this is a highly unlikely timeframe.
Final takeaways for employers
The updated superannuation guarantee legislation leaves employers with far less room for delay or error. More frequent payments and stricter oversight mean breaches will be identified sooner and penalised more heavily. Acting now – by tightening systems and processes – is the simplest way to stay compliant.
Remember:
- The superannuation guarantee (which includes notional earnings) is now deductible. Non deductibility of tax penalties does not change.
- The new approach where payment of superannuation contributions has not been made on time is to encourage employers, on becoming aware of the failure to pay on time, to make payment of the contribution and any shortfall amounts calculated in accordance with shortfall regime and make the disclosure to the Commissioner before an assessment issues.
- Underpayment can result in a cascading list of penalties. Where there is an underpayment and this is not corrected, each payment intended to comply with a payday will instead be applied to the underpayment thereby putting the employer in breach of the payment obligation for the intended payday and so attracting additional penalties.
- In the case of late payment, if the employer does not want to wait for a Commissioner payment Notice, the employer will need to calculate the administrative uplift to work out the amount to pay to stop the notional earnings accruing. There will be a need for calculation tables to assist in this calculation.
- It is important to note that the contribution must be received by the fund within the standard period as defined. It is not sufficient that it is paid to a clearing house in this timeframe. In addition it must be able to be allocated by the fund. Rejected contributions will require action.
Please note: This article does not constitute legal advice and should not be relied upon as such. Formal legal advice should be sought in particular matters.
