The Australian Government passed legislation on 6 November 2025 to overhaul the timing of Superannuation Guarantee (SG) contributions, effective from 1 July 2026. The new legislation will change the frequency of an employer’s obligation to make superannuation guarantee contributions along with other adjustments to the underlying payment mechanics.
WHY THIS MATTERS
This legislative overhaul substantially affects payroll operations, compliance requirements, and financial planning for both Australian and foreign employers with employees in Australia. Organizations must transition from quarterly to more frequent SG payments, requiring updates to payroll systems, reconciliation processes, and service provider arrangements. For globally mobile employees, increased reporting and payment frequency may change the timing of superannuation contributions, affecting assignment budgets, cost projections, and cash flow management. The new annual cap and frontloading of contributions particularly affect high earners and those receiving large bonuses, potentially leading to earlier cap attainment and altered timing of employer costs.
Background
Currently, employers of employees working in Australia are required to make SG contributions on behalf of their employees into a complying Australian superannuation fund on a quarterly basis. For FY2026, the SG rate is 12 percent of an employee’s ‘ordinary time earnings,’ capped at earnings of A$62,500 per quarter (i.e. the maximum required SG contribution is A$7,500 per quarter). Ordinary Time Earnings (OTE) refers to what an employer pays to employees for their ordinary hours of work, including commissions, bonuses and shift loadings. Employers are required to make SG contributions by the 28th of the month following the end of the quarter.
Key Highlights
Key Changes from 1 July 2026
- This legislation introduces "Payday Super," marking a substantial change in the superannuation guarantee framework for Australian employers or foreign employers with workers in Australia. The key changes are as follows:
- Payment timing: Employers will be required to pay SG contributions within seven business days of each employee’s payday, replacing the current quarterly SG contribution system. SG contributions will need to be received by the employees’ superannuation fund within seven business days.
- Limited exceptions: An extended period applies when an employer first contributes to a new employee or new superannuation fund, allowing 20 days after pay date to reach the employee’s superannuation fund. For out-of-cycle payments, like bonuses or commissions, superannuation is required to be paid within seven business days of next regular pay event.
- Calculation base: The legislation has redefined the earnings to which SG applies. From 1 July 2026, SG is calculated as 12 percent of an employee’s “Qualifying Earnings” (QE). This includes OTE amounts, salary sacrifice super amounts, and other situations that are currently captured for SG, such as individuals that fall within the extended definition of “employee.”
- Maximum contribution base (MCB) The MCB will change from a quarterly cap to an annual cap. (i.e., employers will be required to make SG contributions on QE amounts up to annual MCB of A$250,000 for the 2026/2027 financial year , frontloading the payment of SG until the cap is reached).
- Reporting obligations: To date, employers were not required to report on employees’ earnings to which SG was applied. From 1 July 2026, an employer will have an obligation to report the components of QE amounts that were used to calculate SG contributions.
- The Superannuation Guarantee Charge (SGC) regime: The regime for correcting underpayments of superannuation has changed as well as the interest and penalty framework. Employers will need to lodge a voluntary disclosure with the Australian Taxation Office (ATO) when it has identified an underpayment of SG.
SGC & Penalty Framework Change | |
Current SGC regime | From 1 July 2026 |
• Shortfall Calculation is prepared using “salary and wages,” which is a broader than ordinary time earnings. • Interest: Fixed 10 percent per annum. • Admin charge: Flat $20 per employee per quarter. • Tax Deductibility: SGC (including shortfall, interest, and administration fee) is not tax deductible. Only on-time SG contributions are deductible. • Late Payment Penalties: Possible additional penalties up to 200 percent of SG amount for serious non-compliance. | • Shortfall Calculation: Qualifying earnings (QE) will be used in place of “salary and wages” definition. • Interest: Daily interest (GIC rate) replaces fixed 10 percent. • Admin Uplift: Up to 60 percent additional charge (reduced if employee makes a voluntary disclosure). • Tax Deductibility: SGC (core amount) is now deductible; late penalties/interests are not deductible. • Late Payment Penalties: Employers who fail to pay the SG charge in full within 28 days of assessment will incur additional penalties of up to 50 percent of the unpaid SG charge amount. |
ATO Compliance Approach for the 2026/2027 Tax Year
- The ATO released draft practical compliance guidelines PCG 2025/D5 which outlines its compliance approach for the first 12 months as employers transition to the new regime.
- The ATO has indicated it will adopt a risk-based compliance approach, with priority of compliance resources applied to higher-risk employers.
- Low risk: Genuine efforts to comply with timely contributions and evidence of efforts to correct as soon as practicable. The ATO will not have cause to review these employers.
- Medium risk: Payments were paid according to previous quarterly deadlines within 28 days following the end of the quarter. The ATO may allocate compliance resources to this group; however, priority will be given to individuals classified as high risk.
- High risk: SG shortfalls that remain 28 days after the end of the quarter. Examples included incorrect calculation of contributions, paid late and remained unpaid after the end of the quarter. The ATO will apply compliance resources to investigating these employers.
- The draft practical compliance guidelines do not specify the ATO’s compliance approach after 30 June 2027. The ATO is likely to take a stricter stance on compliance and enforcement once Payday Super is fully implemented and employers have had sufficient time to take steps to comply.
Implications for Employers with International Employees In or Out Bound of Australia
- Aligning processes to enable frequent contributions: If you manage shadow payrolls in Australia, you might consider reviewing your processes to match the increased super contribution frequency. You may need to update payroll policies, reconciliations, vendor selections, or service agreements for local operations. The legislation requires SG contributions to be paid into superannuation funds within seven business days after payday. There is still no clear guidance regarding how these rules will affect shadow payroll reporting arrangements.
- ATO Clearing house: The ATO currently offers a SG clearing house for small businesses that do not have a SG clearing house operator in place. From 1 July 2026, the ATO will close this service. Employers who previously utilised this service will need to engage an alternative provider prior to 1 July 2026.
- Cost Projection Calculations and Assignment Budgeting: For high earners over A$250,000 or those receiving large bonuses or allowances, SG contributions will likely be made earlier in the financial year as there will be an annual cap rather than quarterly cap. This frontloading of superannuation contributions can affect cost projections, assignment budgets, and cash flow by causing contribution caps to be reached sooner, affecting both employers and employees.
KPMG INSIGHTS
In light of the changes, KPMG in Australia can help in the following ways:
- Employee Information Sessions: KPMG can run information sessions for employees as part of year-end activities. These sessions help communicate the impact of legislative changes, such as the new annual cap and payment timing for superannuation contributions, helping employees understand how their pay and super could be affected.
- Drafting Communications: Assistance with drafting clear, tailored communications to employees about the changes, including the frontloading of super contributions, new reporting obligations, and the impact on those with Total Fixed Remuneration (TFR) packages.
- Payroll Health Checks and Review Processes: KPMG offers payroll health checks and process reviews to increase compliance with the new SG payment schedule, QE reporting requirements, and accurate mapping of wage codes. This could help employers avoid penalties and maintain compliance.
- Cost Projection Calculations for International Assignees: Support with cost projections for expats and international assignees, including modelling the impact of the annual cap, frontloading of super contributions, and equalization of pension contributions. This step could be crucial for budgeting and assignment planning under the new rules.
- Payroll Compliance for Clearing House Users: Guidance for employers who previously used the ATO’s SG clearing house, which will close from 1 July 2026. KPMG offers outsourced payroll compliance services.
For those with concerns or questions about the details of the above-noted measures and how they (their business, their programmes, their assignees, etc.) might be impacted by the measures, they may wish to contact their usual tax services provider or a member of the GMS-tax team with KPMG in Australia (see the Contacts section).
FOOTNOTES:
1 Parliament of Australia, “Treasury Laws Amendment (Payday Superannuation) Bill 2025” and “Superannuation Guarantee Charge Amendment Bill 2025.”
2 Australian Tax Office, “Payday superannuation,” published 19 November 2025.
3 Australian Tax Office, “Payday Super - first year ATO compliance approach,” PCG 2025/D5.
Contacts
Disclaimer
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The information contained in this newsletter was submitted by the KPMG International member firm in Australia.
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