Notable areas that employers need to consider from the released guidance
The draft LCRs released by the ATO provide detailed guidance that employers need to be aware of to be ready for the commencement of the Payday Super regime.
Qualifying earnings
This draft LCR provides an explanation of what constitutes qualifying earnings under the Payday Super regime. Qualifying earnings are used to calculate the minimum level of superannuation contributions an employer needs to make to be considered compliant, and the superannuation guarantee contributions calculations will remain unchanged under the new Payday Super law.
Tip for employers: An employee can obtain an exemption certificate from the ATO which results in qualifying earnings being nil. This should be considered as part of the onboarding process for new highly paid employees who may have already reached the maximum contributions base with their former employer.
Eligible contributions
Superannuation contributions an employer makes that reduce or avoid the superannuation guarantee charge (SGC) are known as eligible contributions. This draft LCR explains the criteria the contributions must satisfy to be eligible contributions and the time periods within which the contributions must be received.
The contribution is considered to be compliant if within seven business days of the Qualified Earnings day (being payday, and subject to any extended due dates applying), it is received by the employee’s super fund and able to be allocated. A contribution is able to be allocated when the fund can identify that the employee to whom the contribution relates is a member and the contribution is for that member. Further, the contribution is able to be allocated only if there is nothing in the super fund rules or any legislative provision, that would prevent the fund from accepting and allocating the contribution.
The draft ruling also sets out the circumstances where a longer compliance period of 20 business days is allowable. This includes new worker engagement, an existing worker who changes their super fund, out-of-cycle payments, and where an exceptional circumstances determination from the ATO exists (such as natural disasters and widespread information technology outages).
Tip for employers: Verify that you have the correct superannuation fund details for each employee before making the superannuation contribution, which includes consideration of your new employee onboarding processes. Implement payroll policies to ensure compliance with the seven day time period.
Calculation and assessment of the superannuation guarantee charge
This draft LCR provides an overview of how the SGC is calculated and assessed in light of the amendments made by the Payday Super reforms.
The SGC applies where an employer has not complied with its minimum SG obligations, and is made up of the super shortfall plus a notional earnings component and an administrative uplift amount. The notional earnings component is effectively interest and is based on the general interest charge rate on a daily compounding basis. The administrative uplift component is up to 60 per cent and potentially applies to the super shortfall and notional earnings components, but it can be reduced in certain circumstances such as voluntary disclosure.
There is an extensive example in the draft ruling on a commissioner-initiated assessment, which covers calculations of the super guarantee shortfall, the notional earnings amounts and administrative uplift amounts.
Tip for employers: If you make an error, correct it as soon as possible by making a voluntary disclosure, to maximise the penalty reduction. Penalties for non-compliance will be higher for ATO initiated SGC assessments, or where there is delay between the non-compliance and subsequently making the voluntary disclosure.
Application and transitional provisions
A transition will occur from the current quarterly super guarantee system to the Payday Super regime, and this draft ruling provides guidance on the provisions that support that transition. These transitional rules are intended to address timing mismatches, legacy arrangements and overlapping actions or obligations that may arise during the transition period.
The key transitional rules covered in the draft LCR includes:
- How excess contributions made before 1 July 2026 are applied under the new Payday Super law
- The cessation of the late payment offset
- How contributions made between 1 July 2026 and 28 July 2026 will be applied.
Excess contributions made before 1 July 2026 can be treated as an eligible contribution under the new Payday Super law broadly when they are made in the 12-month period prior to the relevant payday.
Employers cannot offset contributions made on or after 1 July 2026 against a liability to pay the SGC. As such, the quarter ending 31 March 2026 is the last quarter that the late payment offset is available.
In relation to contributions made between 1 July 2026 and 28 July 2026, these will be applied firstly to reduce the employee’s charge percentage for the relevant employee for the quarter ending 30 June 2026. Then, any remaining contribution amount will be applied to paydays on or after 1 July 2026.
Tip for employers: If using the late payment offset to correct any known superannuation shortfalls for quarters ending before 31 March 2026, this must be done before 1 July 2026. Pay particular attention to ensure superannuation contributions are correctly made for the quarter ending 30 June 2026, and if possible before 1 July 2026.
How BDO can help
BDO’s employment tax specialists can guide you through the recent developments for the Payday Super regime and what this means for your business. Our team will help ensure your preparations will support compliance for the new Payday Super regime, minimising risks of non-compliance. We also review your payroll items and your policies and procedures, to ensure compliance for superannuation guarantee purposes, and identify any areas requiring attention.
If you would like tailored advice or have questions about employment taxes, please reach out to a BDO employment tax expert.
