Employment Hero, the global authority on employment, has today released modelling that shows businesses will need an extra $124,000* in working capital on average to meet the government’s new Payday Super rules; a seismic shift in payroll and compliance requirements due to take effect in less than 12 months.
Employment Hero owns a deep vault of real-time payroll data, trusted to run payroll for more than 300,000 businesses, with 2 million verified payslips each month and AU $120 billion flowing through the platform annually. Employment Hero is urging Australian businesses to start preparing for Payday Super now, with less than 12 months to meet the raft of proposed requirements, and little detail on how infrastructure will be modernised or how businesses will be supported through this milestone change.
Employment Hero supports the intent of Payday Super – to improve and protect retirement outcomes for Australians – but advocates for legislation to account for how businesses actually operate today, and not overload SMBs with unfair risk or cost that could work against the policy objective.
In an Employment Hero survey of its business customers, 65% of SMBs said Payday Super will have a moderate to huge impact on the day to day running of their businesses and 32.5% said they would have to build larger cash reserves to prepare for the change. 15% of SMBs were not aware of Payday Super at all.
Employment Hero is working to iterate on and build new solutions as part of its industry-leading Employment Operating System, designed to remove the compliance burden for Australian SMBs. Automated superannuation payments, seamless, digital employee onboarding, Single Touch Payroll integration and ATO compliance and employee pay features will all be available to help businesses start to prepare and ensure accuracy, ease and transparency of their super and payroll payments.
Employment Hero is working closely with the government, as well as clearing houses, the ATO and super funds to develop a dedicated new suite of Payday Super solutions, as well as advocating for changes that will remove the disproportionate risk for SMBs and reduce significant unintended consequences.
Employment Hero CEO, Ben Thompson, says Payday Super presents a huge opportunity for all Australians, but currently presents an untenable risk for small and medium businesses.
“Payday Super could be the biggest positive change to super since its introduction, but it must be done in a way that doesn’t break small businesses or cost Australians their jobs. Without changes to SuperStream, payments infrastructure and proposed penalties, we risk a system where small businesses are punished for delays outside their control, and that’s simply unfair,” said Thompson.
“That’s why we’re doing everything we can to support SMBs through this change, including advocating for changes that will reduce the risk of insolvency for SMBs and in tandem, building solutions that are going to make it easier for employers to be compliant, regardless of where the legislation or infrastructure change lands,” added Thompson.
As part of the proposed reform, employers will have a seven-calendar-day deadline from the payment of wages to pay the Superannuation Guarantee (SG), which is a 75% decrease in leeway to make payments. If the compressed deadline is not met for any reason – including an error or delay from any external party – the employer is liable for the updated SG charge, which includes the shortfall, daily interest and an administrative uplift of 60% of the shortfall.
Almost 20% of Employment Hero customers stated they do not feel very or at all prepared to meet the seven-day deadline, with an additional 50% stating they only feel ‘somewhat prepared’. Respondents also shared their concerns on clearing houses or super funds causing delays and putting businesses at risk of penalties. Some open-ended commentary showed many businesses are not aware that liability would, in fact, fall to them.
Shaun Sullivan, Director at Elite Bookkeeping Enterprises said “The industry needs certainty and clarity on who is responsible and accountable when delays and/or errors happen. We’re very concerned that currently, only the business is responsible for the payment landing within the new seven day deadline but there are so many edge cases – such as public holidays or other events outside of our control – which could see this deadline miss. We need concessions for delays and more information on how any corrections or adjustments can be done in what is currently an unreasonable time frame.”
Employment Hero is asking for legislate required modernisation of the super system infrastructure to combat this, along with a staggered implementation to give SMBs more time to prepare, to extend the payment window to 10 business days until faster, real-time payments and messaging infrastructure is in place and to make penalties fairer for SMBs and providing more transitional support.
Thompson said: “Most business owners didn’t go into business because they wanted to manage employment; they want to use their time to do what they love and what they’re passionate about. Employment Hero exists to make employment easier and more valuable, which is why we are passionately working to help make Payday Super a positive change for all.
“12 months may seem like a long time, but the impact on SMBs and required infrastructure upgrade imposed should not be underestimated. We’re encouraging all businesses to turn their attention to Payday Super and making sure you have the right systems and processes in place to manage the admin and cashflow impacts,” added Thompson.
Notably, 20% of Employment Hero customers said they would have to or were unsure whether they would change the frequency of their pay cycle to meet these requirements, but 84% stating their employees would be somewhat or very concerned if their pay cycle had to change.
* Employment Hero Modelling has been calculated based on the average employer size and the average employee salary on the Employment Hero platform and looks at the current average payroll cycle versus the increase in SG events per year under the proposed Payday Super Reform, using anonymised and aggregated data. Based on these calculations, the increase in SG events per year will require $124,615 in order to meet the proposed timing requirements.