Businesses falling short of payday super rules through no fault of their own will escape harsh penalties, the ATO says. Here’s how the three-tier risk system will work.
What’s happening: The Australian Taxation Office has released draft guidance showing employers falling short of payday superannuation rules through no fault of their own will escape harsh penalties when the reforms commence on 1 July 2026.
Why this matters: The ATO’s compliance approach recognises businesses will need time to deploy, test and embed changes within their payroll systems, potentially avoiding what one expert called a “period of chaos”.
The Australian Taxation Office has signalled it won’t harshly penalise small businesses struggling with the transition to payday superannuation, unveiling a risk-based compliance approach that acknowledges the complexity of the July 2026 reforms.
See: Payday super bill arrives in parliament with a $124k problem for SMEs
The draft guidance, published on 9 October alongside legislation tabled in Parliament, recognises fears that some employers will not have had sufficient time to deploy, test and embed changes within their payroll systems and business processes prior to 1 July 2026.
Under the payday superannuation reforms, employers will be required to pay superannuation guarantee contributions at the same time as wages, rather than quarterly. Employers who do not align their superannuation guarantee payments with regular weekly, fortnightly or monthly wage payments could face significant financial penalties if the legislation passes in its current form.
Three-tier risk system
To address industry concerns, the tax office said it would use a three-tier risk system, with businesses that quickly identify and fix mistakes least likely to face an ATO investigation.
Employers might be deemed low-risk if they attempted to meet their payday super obligations, found some or all of those payments did not land in an employee’s fund on time, but addressed the problem as soon as reasonably practicable.
“The level of risk for these cases will depend upon whether the error is corrected, and how quickly the employer corrects the error,” the tax office stated.
“An employer who corrects the error as soon as is reasonably practicable will fall into a lower risk zone than an employer who does not.”
Medium-risk businesses might have a super guarantee shortfall on payday, but ensure the shortfall is nil by 28 days after the end of the quarter in which payment should have occurred.
High-risk businesses, and the ones most likely to draw the ATO’s ire, are those with outstanding super guarantee shortfalls outside of that 28-day buffer.
The guidance covers the period from 1 July 2026 to 30 June 2027 inclusive, and is subject to further consultation and the ultimate passage of payday super legislation into law. Feedback on the draft guidance is open until 7 November 2025.
Industry welcomes balance
MYOB CEO Paul Robson said the ATO guidance strikes the right balance between penalising superannuation-dodging businesses, while preventing small employers from punishment when payment delays are not their fault.
“We are pleased to see the government has considered industry feedback and taken a commonsense approach to compliance timeframes,” Robson said.
“Small and medium-sized businesses employ around two-thirds of Australia’s workforce, making their readiness essential to the successful rollout of Payday Super. Empowering these businesses to implement the changes effectively will be key to achieving the Bill’s goals.”
MYOB supports superannuation payments for approximately 1.2 million Australian employees through its software.
Angad Soin, Xero’s ANZ managing director and global chief strategy officer, said the company will work with the ATO to assist small businesses already facing time, compliance and financial pressures.
Employment Hero CEO Ben Thompson shared similar views, saying enforcement should recognise the realities of how small and medium businesses operate.
“Employment Hero welcomes the introduction of the Payday Super bill to the Australian Parliament. With the 1 July 2026 implementation date fast approaching, this legislation provides much-needed clarity and certainty for Australian businesses preparing for one of the most significant payroll and compliance reforms in decades,” Thompson said.
However, not all industry voices were equally enthusiastic about the approach.
Richard Webb, superannuation lead for CPA Australia, said the organisation is pleased that the government has heard calls for more proportionate penalties for small businesses who fail to immediately comply with the new rules.
However, Webb noted the three-tier risk system is not the same as if the bill formally allowed businesses time to adjust.
“The start date of July 2026 remains a major challenge,” Webb said. “A period of chaos could ensue as businesses try to fulfil their compliance obligations while trying to balance their books.”
The compliance window
The legislation reflects a key change advocated for by industry, with the compliance window revised from seven calendar days to seven business days.
Employers will generally need to ensure contributions arrive in employees’ superannuation funds within 7 business days of payments of qualifying earnings. Qualifying earnings is a new concept which includes ordinary time earnings, salary sacrifice superannuation contributions and other amounts currently included in an employee’s salary or wages for superannuation guarantee purposes.
An extended timeframe to pay contributions will apply in certain circumstances, for example when an employer is contributing to a superannuation fund for the first time for an employee, including new employees, when payments of qualifying earnings are made to an employee outside their regular pay cycle, and where exceptional circumstances have impacted the ability of multiple employers on large scale to pay superannuation contributions.
What businesses should know
The reforms represent a significant shift in how superannuation is paid and monitored. New modelling from Employment Hero reveals small and medium-sized businesses face a $124,000 working capital gap to meet the new requirements.
A survey of Employment Hero customers found 15% of small businesses remain unaware of the payday super changes, whilst 32.5% say they will need to build cash reserves to maintain solvency under the new system. More than 20% of businesses indicated they may change their pay cycles to accommodate the requirements, despite 84% of employees opposing such changes.
The reform aims to address widespread underpayment issues. Data shows unpaid super affects one in four workers across Australia, with $5.1 billion going unpaid for 2.8 million Australians in 2021-22. The average underpayment stood at $1,800 per worker, with $100 million of super failing to reach workers’ accounts each week.
Shane Hancock, AustralianSuper’s General Manager for Retirement, said research shows strong public backing for the change. Recent polling commissioned by the Association of Superannuation Funds of Australia found 80% of respondents agreed super should be paid at the same time as wages.
“For many working Australians, this means their super will be paid earlier and invested earlier, maximising the benefits of compounding growth. Payday super will also help to address issues of unpaid and underpaid super so Australians receive the super they have earnt,” Hancock said.
Treasurer Jim Chalmers told Parliament that workers will benefit from more frequent and earlier super contributions that compound over their working lives, with the average 25-year-old worker gaining the equivalent of an extra $6,000 in today’s dollars by retirement.
Currently, when the ATO responds to an employee complaint about unpaid super, it may be investigating two years of unpaid contributions. The government is investing in the ATO’s capability to detect suspected non-payment of super in real time as part of the reform.
As part of the changes, the Small Business Superannuation Clearing House will be retired from 1 July 2026 and closed to new users from 1 October 2025. The improvement in payroll software solutions over recent years provides employers with cost-effective and higher quality options for paying superannuation contributions more timely and accurately.
The bill will now progress through parliament, with businesses closely watching both the legislative process and the ATO’s final compliance guidelines ahead of the July 2026 implementation date.
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