Employers warned about Payday Super ‘misconceptions’ as start date approaches

Employment software provider Employment Hero has warned accountants and their business clients about some of the misconceptions surrounding the new Payday Super regime as businesses start to prepare for the beginning of the new system on 1 July.

In a recent webcast, Employment Hero general manager of product, Rob Dunn, said that one of the main misconceptions among business owners is that Payday Super is simply just paying super more frequently.

“It's definitely much more than just a small administrative tweak because you need to make sure that you are verifying your employees’ super fund details during the onboarding process,” said Dunn.

Dunn said employers also need to check that their manual processes are ready for a 15 times increase in the frequency of super payments.

“The ATO projects that there will be a 25 times increase in potential errors and [payment] returns and a potential 60 per cent increase in the fines that can be levied if you are late to pay,” he said.

Dunn explained that one of the most significant changes as part of the new regime is that the clock now starts when an employer submits the STP pay run event and stops when the super fund receives the super guarantee payment and reconciles that into their account.

Under the new Payday Super regime, that whole process will need to be completed within a seven-day window. Currently, employers have around 20 to 21 days to complete the whole process, he noted.

“So it’s a material change, and if there are any errors along that flow, then unfortunately it will be the employer who takes the hit for any penalties or late fines,” he said.

Employers that are operating with manual or semi-manual reconciliations could potentially be caught short because it’s a very short window to be trying to run all those manual systems, he said.

Dunn said that many accountants also made the incorrect assumption that their clients are aware of the changes and are working them out.

However, research undertaken by Employment Hero has revealed that 58 per cent of employers are currently unaware of the changes.

“There is a huge opportunity to engage with them now and help them prepare across manual processes and how to automate those cash flow planning and how to ensure that all their data is accurate in advance of the 1st of July date,” said Dunn.

Many businesses are also underestimating the financial impact of the transition.

While not a direct extra cost, Dunn said Payday Super creates a working capital timing problem.

Employment Hero research indicates the average SME with approximately 20 employees will require $124,000 in additional working capital to manage the shift from quarterly to more frequent payments.

Research also suggests that 40 per cent of businesses may require a line of credit just to meet their super obligations on time.

“At what point is that going to become a solvency question for businesses on the ground rather than simply a matter of complying with the new reforms,” said Dunn.