A large proportion of small and medium businesses face a double drain on working capital this month as the biggest cash flow shake-up in years — Payday Super — comes into effect.
The long-anticipated scheme has replaced the quarterly lodgement system and requires employers of all sizes to make superannuation payments in every pay run. The move is designed to eliminate lost and unpaid super and increase transparency for employees. But it also removes the 3-month buffer many SMEs have traditionally relied upon for working capital.
Businesses that did not switch from quarterly payments prior to the 1 July implementation face a cash flow crunch during the transition, as they are forced to make final payments under the old system and first payments under the new system within the same month.
Employment Hero research suggests businesses will need an average of $124,000 in additional working capital through the changeover.
“The changes will have a material impact for every business but particularly for SME businesses where the operational and cash flow impacts will be quite significant,” says Rob Dunn, Employment Hero’s General Manager for Payments, Superannuation and Benefits. “For any business that hasn’t made the switch yet, the time to act is now.”
The 1 July Change Will Hit Some Employers Twice
Despite the Australian Tax Office’s (ATO) hopes that businesses would plan for Payday Super well in advance, the shift away from quarterly payments has been slow. In February, an Employment Hero survey found 58 per cent of businesses hadn’t heard of the looming changes. By late May, more than half of Australian businesses — the majority of which are SMEs — had still not increased the frequency of super payments and continued to lodge every three months.
Those businesses now face a collision of cash flow demands, as the law forces multiple super payments to be made within the space of a few weeks. The final quarterly super obligation for April-June 2026 is due by 28 July, before which businesses with weekly or fortnightly pay cycles will have to make one or more Payday Super contributions.
There is a complicating factor for any small business owners planning to prioritise Payday Super obligations earlier in the month and settle the quarterly payment closer to 28 July: the ATO has warned super owed under the old system must be paid first. This means intended Payday Super payments would be redirected to quarterly debts, potentially leaving Payday Super obligations unmet and triggering a penalty.
“Square off the old obligation before you start meeting your Payday Super requirements, or you risk falling behind from day one,” advises Dunn.
Transition Trap Penalties Can Be Avoided
The ATO has promised a “supportive and educative approach” for well-intentioned business owners battling with the transition. “Employers who genuinely try to do the right thing won’t be the subject of ATO compliance action in the first year of Payday Super,” promises Deputy Commissioner Emma Rosenzweig.
The ATO will have much earlier visibility of unpaid super than under the quarterly system but, initially, non-compliance will be met with a graduated approach. Low-risk employers, who make a genuine attempt to pay super on time or fix errors quickly after they’re identified, will not be investigated. Medium-risk employers, who occasionally pay late, have repeated admin issues or don’t try to improve their processes after an initial slip-up, may face follow-up attention. High-risk employers, those who deliberately delay payments and repeatedly fail to meet their obligations, will be the subject of ATO scrutiny.
The biggest risk for SMEs is likely to be inadvertent non-compliance if payment processing times or clearing house delays mean the 7-day clearance deadline is missed. “The 7-business-days clock doesn’t stop if your super payment is rejected. You still have to fix the error and get the payment through within those 7 business days,” says Rosenzweig.
“Super payments can bounce back if the account details are incorrect, or there’s some other error. We recommend paying super at the same time as salary and wages, keeping good records and talking to your software provider or super fund to understand how long they will take to process your super payments,” she adds.
There is a specific warning for businesses that miss the final quarterly super deadline on 28 July. They should not pay the outstanding amount directly to employees’ super funds after that date, as those payments will instead be allocated to Payday Super contributions. Instead, businesses must lodge a Super Guarantee Statement and pay the outstanding amount to the ATO. They won’t be able to use a late payment offset, as they could under the old system.
Narrow Payment Windows Make Accuracy Essential
Clearing the June quarter super obligation before the first July payday may prove challenging for employers who have not been able to build a cash buffer in advance, particularly if they previously relied on the quarterly payment cycle to manage liquidity.
The ATO is urging businesses to understand exactly when each payment falls due and, if they are unable to meet their obligations, seek advice early rather than simply allowing deadlines to pass. It recommends urgent action by any business owner yet to switch from the Small Business Superannuation Clearing House, which is now closed.
Payday Super also expands Single Touch Payroll (STP) reporting, requiring employers to report the amount of each employee’s pay that qualifies for super in every pay run. That means identifying which wages, allowances and other payments attract super, ensuring payroll calculations are accurate each time staff are paid. Payroll software can automate much of this process, but businesses relying on manual or disconnected systems are likely to face a noticeable increase in payroll admin.
“A lot of businesses think they’re across this, but Payday Super compliance is more than just paying on time,” says Dunn. “You need accurate employee fund details, a system that can validate and clear payments and enough working capital to meet obligations every single pay run from today.”
What Employers and Employees Should Expect Next
For employees, the practical change is straightforward: super will appear in their fund accounts more frequently, although the total annual amount remains unchanged. The ATO has encouraged employers to communicate this to staff proactively, particularly where questions arise about multiple smaller deposits replacing a single quarterly payment.
They may even find they become more engaged with retirement planning. “For employees, Payday Super means your super is now visible every single pay cycle, and that matters,” says Dunn. “Check your fund details are up to date with your employer, because accurate information is what gets your super paid on time.”
