Improve systems ahead of Payday Super, employers told

Employers across Australia are being urged to start fortifying their systems to ensure they are ready for the upcoming Payday Super changes on July 1.

Judy White, Executive Director of the Corporate and International Tax team at BDO Global, advised employers to use the remaining months before implementation to pressure-test their systems and processes.

"In the lead-up to Payday Super, businesses need to be using this time to review their payroll processes, confirm their payment systems are ready and ensure employee super data is accurate," White said in a statement.

"A lot of employers currently rely on systems designed around quarterly payments. With Payday Super, those processes need to operate much more frequently and with far less margin for delay."

Payday Super challenges

Payday Super will require employers to pay super contributions on employees' payday, with the funds reaching workers' super funds within seven business days.

Experts have warned that this major shift in payment schedule will remove the "unofficial cash buffer" for employers, especially for small businesses.

"If you run weekly or fortnightly payroll but get paid by customers on more than 30-day terms, you suddenly have a liquidity mismatch, which is a huge challenge for any business, particularly those already experiencing cash flow pressures," said James Beeson, chief executive officer of Earlypay, in a statement.

More than half of employers (58%) in a recent Xero research found that customer payments will be their biggest challenge to managing ongoing cash flow. This is followed by rising cost pressures with 57%.

In anticipation of these changes and challenges, 31% of small business employers are already expecting to dip into their personal savings or borrow money to meet compliance obligations.

More than a third of employers also said they are planning to delay paying business expenses (31%) or paying themselves (38%) to manage the strain.

Angad Soin, Managing Director ANZ and Global Chief Strategy Officer at Xero, noted that the change is "about more than compliance."

"It's about whether businesses have the visibility and control to manage their cash flow with confidence. As margins tighten and pressure builds, real-time insights become essential," Soin said in a statement.

Addressing the Payday Super shift

The implementation of Payday Super comes in the wake of other major challenges in the Australian economy, such as the sharp rises in fuel costs and wages, according to Earlypay.

"Coupled with the big macro challenges already impacting the day-to-day operations of SMEs and the uncertainty around the conflict in the Middle East, Payday Super is another impost that has the potential to have a big impact on many businesses," Beeson said.

"For SMEs, this is not just a question of how they can comply with Payday Super, it's an opportunity to health check the working capital flexibility of their businesses to ensure they can comply without starving the business of the cash flow they need to survive and thrive. 

"By acting now to identify pressure points, it's possible to put contingencies in place ahead of time to avoid stress post 1 July."

Employers should also consider using invoice finance in case their customers drag out payment terms.

"If SME operators don’t feel like they are in a position to push back against this and ask to be paid sooner, they may consider using invoice finance which brings forward the cash flow from unpaid invoices to help bridge the gap between payroll obligations and customer payment cycles," Beeson said.

Soin offered related advice, focusing on improving payment methods and digital systems to support cash flow.

"Even simple steps like offering online payments on invoices — whether that's card, digital wallets, PayTo, or direct debit — can help businesses get paid up to twice as fast and improve cash flow," he advised.

The managing director added that it will be critical for employers to strengthen their systems amid late payments and tighter margins.

"The right digital tools and automation can make a real difference," he said. 

"With late payments and tighter margins still putting pressure on small businesses, strengthening your systems now will put you in a much better position to meet Payday Super obligations with confidence and let you focus on what matters most for your business."