The new rule will affect millions of Australians, ensuring that their superannuation is deposited more regularly into their funds, benefiting from compound interest and leading to a larger balance by retirement. However, small employers, particularly those in hospitality and retail, are worried about the impact on their cash flow and the additional complexities involved in payroll management.
Small Businesses Face Cash Flow Pressure
The Institute of Public Accountants (IPA) has raised serious concerns over the new system, particularly for smaller employers who are less equipped to deal with frequent superannuation contributions. Under the current system, employers have the flexibility to make contributions quarterly, providing them with a buffer period to manage their finances. However, under the new Payday Super system, employers must pay superannuation within seven days of each pay cycle, putting added strain on their cash flow.
Tony Greco, Senior Tax Advisor at IPA, explained that for many small businesses, the change is likely to be overwhelming. “Paying super is far more complex than paying wages, and anyone who refers to it as simple needs to look under the bonnet to understand the complexities,” he said.
With the new rule requiring more frequent payments, small employers, who often pay employees weekly or bi-weekly, will face challenges in ensuring they have enough cash flow to meet the new requirements.
Many small businesses have voiced their concerns about the added administrative burden. Daniel McGowan, a café owner from Queensland, expressed the need to adjust his financial planning to accommodate the new payment structure. “I need to have that cashflow right here and now to put into the business to go straight into superannuation,” he said. For some, it may mean building up larger cash reserves in anticipation of the changes, a significant adjustment for businesses that already operate on tight margins.
Workers to Benefit from Regular Contributions
While the new system presents challenges for employers, it offers considerable benefits for employees. According to experts, receiving superannuation payments more regularly will allow workers to take full advantage of compound interest, ultimately boosting their retirement savings. The transition to more frequent payments means that workers will see a steady increase in their superannuation balance over time, as their contributions will be invested more promptly, generating returns sooner than under the previous quarterly system.
The government argues that the changes will help address the ongoing issue of unpaid super, which has cost Australian workers billions. In the 2022-23 financial year alone, over three million Australians missed out on superannuation payments, totalling $5.7 billion in lost contributions. By making superannuation payments more regular and transparent, the government aims to crack down on this issue, ensuring that more workers receive the full entitlements to which they are entitled.
Moreover, the move aligns with broader efforts to modernise Australia’s superannuation system, particularly as a growing number of workers rely on their superannuation to fund their retirement. Regular payments may also encourage workers to be more engaged with their superannuation funds, providing an opportunity to better manage their long-term financial wellbeing.
The introduction of Payday Super represents a major step forward in Australia’s superannuation system, but it also brings with it challenges, particularly for small businesses. As the July 1 deadline approaches, business owners and industry groups are calling for a more gradual roll-out to ensure that small businesses are adequately supported during this transition.
