What is “Payday Superannuation”?
- Amanda Amey
- Oct 21
- 6 min read
Updated: 11 hours ago
The reform often referred to as “payday super” is the change by the Australian Taxation Office (ATO) to align the timing of employer superannuation contributions (the Super Guarantee) with the timing of wages/salary payments (your payday), rather than the current quarterly payment requirement.
In practical terms: under the new regime, when you pay an employee their ordinary time earnings (OTE) for a pay period (weekly, fortnightly, monthly etc), you will also need to ensure their super contribution reaches their nominated super-fund in that SAME pay-cycle (or within the statutory timeframe) rather than waiting for a quarterly super payment.
Why Pay day super? It is planned to improve retirement savings outcomes for employees, reduce the risk of unpaid or delayed super, and provide the ATO with greater real-time visibility of super payments.
When does Payday Super start?
According to the ATO and Treasury’s draft materials:
The reform has been introduced into Parliament via the Treasury Laws Amendment (Payday Superannuation) Bill 2025.
The effective date stated is 1 July 2026 for the new payday-super regime.
There is also an important date around the free super clearing house: (the ATO’s free service) – the Small Business Superannuation Clearing House (SBSCH) – will stop accepting new registrations from 1 October 2025 and will close completely on 30 June 2026 (so that from 1 July 2026 you cannot use it).
So from the perspective of small business/employers: you should act now (well before July 2026) to prepare your payroll and super-systems.
What happens to the ATO’s Clearing House?
A key change is that the free ATO small-business super clearing house (SBSCH) will no longer be available as a venue for paying employees’ super contributions.
This means businesses that have used the ATO’s free clearing house will need to transition to another method (payroll-software integrated solution, commercial clearing house, or via the super fund’s own clearing service) ahead of the deadline.
If you use Xero for payroll (or are planning to), here’s how setup and process should work — note you should check that your version/plan supports the required features, and test ahead of the reform.According to Xero’s support documentation:
Setup steps in Xero
Ensure your payroll and bank-account setup is ready
Xero requires that you have a dedicated bank account in Xero for your auto super direct-debit payments.
A bank feed should be activated for that account so payments are reconciled properly.
Register for Automatic Superannuation (Auto Super) in Xero
In Xero go to Payroll → Superannuation → select “Get Started” (or the equivalent) to register for the auto super payments.
During registration you will verify your bank account (via PRN/transaction matching) so that automatic debits can occur.
Set up each employee’s super fund in Xero
In Payroll Settings → Superannuation tab, click “Add Superannuation Fund” and enter the fund details (fund name, USI etc).
For each employee, assign their superannuation fund membership in their employee record, so that contributions are calculated and directed correctly.
Decide on payment frequency and process
While the system currently allows you to pay super manually or via automatic payments, with the upcoming reform you’ll want to ensure your workflow aligns with paying at (or close to) each pay run. Xero supports automatic super batch payments.
Test reconciliation and reporting
After a super payment is processed, ensure the bank feed transaction links to the super debit and the employee super funds entries are matched.
Monitor super accrual reports to ensure all amounts are being captured correctly.
How the money flows / what you need to do each payday (or pay-cycle)
Each pay run, you calculate OTE and the corresponding Super Guarantee amount for each employee.
In Xero, when you process payroll, contributions will accrue to each employee’s fund (given you have set up the fund details and employee fund assignments).
Then either:
Xero (via Auto Super) draws the money from your nominated bank account (direct debit) and credits the employees’ super funds via the SuperStream standard; or
You manually initiate the super payment in Xero / via some clearing-house route, then reconcile in Xero once the bank feed appears. (The automated method reduces manual work.)
After funds are debited, you reconcile the transaction in Xero, linking the debit to the super liabilities and the appropriate employee fund allocations.
On the employer side: make sure the super contributions arrive in the employee’s nominated super-fund within the required timeframe (to meet the upcoming 7-day rule). According to ATO: contributions will generally need to reach funds within 7 calendar days of each payday (subject to final legislation).
Ensure that you have correctly reported via STP both the OTE and the super liability for each employee. Under the reform, the ATO will require employers to report both OTE and SG liability.
Key things the client must do each cycle:
Run payroll for the pay period (weekly/fortnightly/monthly) so that OTE and SG amounts are captured.
Confirm all employee records have valid super fund details and USIs in Xero.
Ensure the Auto Super registration is live and the correct bank account is enabled.
Process the super payment (either via automatic batch or manual submission) such that funds leave your account promptly.
Reconcile the bank transaction in Xero, ensuring the payment matches the accrual and employee fund allocations.
Monitor reports (e.g., Superannuation Accrual) to check nothing is missing.
Retain records of super payments and that they reached the funds within the timeframe.
Review cash-flow impacts (see below) and ensure you have funds available in your bank when the payment is due.
Why this matters for small business cash-flow & how to mitigate the impact
Why it matters
Under the current quarterly system many employers benefit from accumulating super obligations over a quarter and then making one bulk payment. The new regime shifts that to each pay-cycle, which means super obligations are deducted (or need to be ready) more frequently, reducing the “buffer” time employers currently have.
For smaller businesses with tight cash-flow, this shift may pose a challenge: you’ll need to have sufficient cash in your nominated account every time you pay a salary. Several commentators have noted that small and medium enterprises may face additional cash pressure.
The closure of the free clearing house means businesses may face new costs (software subscriptions, clearing-house fees) or implementation / process change costs.
Compliance penalties under the Superannuation Guarantee (Administration) Act 1992 (SG charge) may become more significant if contributions are late or incorrect. The ATO has emphasised that while it may adopt a risk-based approach in the first year, employers must still have systems in place.
How to mitigate your impact
Here are some practical steps you can advise your clients (or adopt yourself) to mitigate the cash-flow and compliance risks:
Forecasting and budgeting: Build into your payroll cash-flow forecast the super contributions as part of every pay run rather than a quarterly lump sum. Ensure your nominated bank account has sufficient funds before each pay run.
Align payroll & funds timing: Ideally set your payroll frequency so that you have a consistent cycle, and your super payment system is automated (via Xero) so you minimise manual work and avoid delays.
Use the auto super feature in Xero so that once payroll is approved, the contribution payment process is triggered automatically and fewer manual steps reduce risk of oversight.
Validate employee super fund details early and regularly**: incorrect fund details or missing USIs lead to processing delays or “rejected” contributions by funds, which now must be allocated or returned within 3 business days (down from 20) under the new regime.
Test your processes ahead of time: Even though the legislative start date is July 2026, it’s wise to simulate more frequent super payments now (e.g., switch from quarterly to monthly) so your business is used to the cadence and your software/processes are tested.
Maintain strong reconciliation & reporting disciplines: Use the accrual reports in Xero to monitor super liabilities, ensure all funds are paid and reconcile bank feed items as soon as the debit appears.
Consider paying super earlier in the cycle (if cash allows) to give a buffer for any processing delays.
Engage your accountant or bookkeeper now: Engage your accountant to to review your payroll system, ensure Xero is properly configured, and monitor that the changeover happens smoothly.
Review your bank account and payment setup: Since the funds will be drawn more frequently, you need to ensure the bank account has low risk of being overdrawn, has sufficient funds, and bank feeds are working properly in Xero.
Key Take-aways – what you need to do now
Recognise that from 1 July 2026 the payday super regime becomes effective: super contributions must align with each pay run (subject to final legislation).
If you currently use the ATO’s free SBSCH, plan and transition now – the service stops new registrations 1 Oct 2025 and closes 30 June 2026.
Ensure your payroll software (eg Xero) is configured for super contributions, each employee’s fund is set up, bank account for super payments is ready, and workflows are tested.
Review your cash flow to ensure you can meet more frequent super payment obligations.
Use Xero’s Auto Super (or an alternative integrated solution) to minimise manual steps, reduce errors and ensure timely payments.
Set up robust reconciliation and monitoring processes in Xero so every super payment is tracked and reconciled.
This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only.
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