What challenges does Payday Super present from the perspective of a Digital Service Provider (DSP), and what are the implications for Employers?

Let me make it clear from the outset of this commentary that I am unequivocally in favour of remitting Superannuation Guarantee (SG) payments concurrently with employee wages. In fact, I have yet to encounter any individual or organisation that opposes the concept in principle; however, some have expressed understandable reservations and genuine concerns about the flawed Government engagement process and administrative arrangements.

Paying super on payday is a straightforward task, and numerous employers are already meeting this necessity. However, the new legislative requirements are significantly more complex than simply paying super on payday.

Some DSPs have reacted antagonistically to discussions about the readiness of products for Payday Super (PDS) and the industry's shared concerns regarding the proposed schedule. Submissions on the Payday Super Exposure Draft strongly echoed the need for a realistic timeframe to implement the required changes. A common concern within our approach to implementation is to ensure that the risk of employers being subject to the Superannuation Guarantee Charge (SGC) is minimised or mitigated altogether. 

As demonstrated in this post, stating that a product is “Payday Super ready” simply because it includes the capability to process contributions and payments directly within the solution is, in essence, meaningless. The real challenge for DSPs is the detailed work required to ensure that Qualifying Earnings (QE) can be configured within the product, although this value cannot be reported through Single Touch Payroll (STP) until 1 July 2026. Payday Super (PDS) introduces a layer of complexity because it mandates the reporting of only the legislated QE component of payments that are designated as "superable."

The Payday Superannuation engagement timeline.

We began the Payday Super journey in 2023, in collaboration with the Treasury and the Australian Taxation Office (ATO). At every opportunity, we reinforced the requirement for DSPs to be allocated sufficient development time to meet the requirements. No DSP was going to start developing their solution until Legislation had received royal assent and we had the full scope of the requirements. Many of the hurdles to be surmounted before moving forward had been raised numerous times with the ATO over many decades, but were never satisfactorily addressed.

With DSPs, development roadmaps are usually created with a forward planning horizon of 18 months, allowing teams to set clear objectives and allocate resources efficiently. Additionally, financial resources are strategically allocated to support each phase of the Software Development Life Cycle (SDLC), encompassing everything from initial requirements gathering to design, development, testing, deployment, customer support, transition, and ongoing maintenance. This structured approach not only facilitates timely project delivery but also enhances overall product quality and alignment with requirements.

The Treasury Laws Amendment (Payday Superannuation) Bill 2025 and the Superannuation Guarantee Charge Amendment Bill 2025 were passed on 4 November 2025 and received Royal Assent on 6 November 2025. We are now at the end of 2026, and DSPs still don't have all of the requirements from the ATO. The concerns are many, least of all the time required to implement and test the changes. DSPs have finite resources, and their products differ in size and capabilities. The Government was provided with detailed feedback from DSPs, stating the time required to update and test their software, train staff, and support their customers to transition. With the introduction of STP and Phase 2, the ATO provided adequate time to meet the requirements, and a deferral process was also established.

Throughout each phase of the STP design, careful attention was paid to ensure that DSPs, regardless of their size and capabilities, had an equal opportunity to meet the requirements. This fundamental, fair, and equitable business principle has been ignored in the Payday Super engagement process.

The ATO has explicitly declared that DSPs must be prepared for PDS by 1 July 2026, regardless of their size or available resources. Limited exceptions are made for those who may struggle to meet this requirement. When questioned about the consequences for a DSP failing to reach this objective, it was stated that the DSP's product would be de-whitelisted. This means the product becomes unusable for its customers as of the delisting date.

The overall outcome is likely to be further consolidation among payroll software options and a reduction in available products due to the introduction of PDS, which could lead to decreased competition and fewer options for businesses in the long term.

Implementing STP and PDS is a necessary statutory requirement; these efforts continue to significantly stall the development of new product features. The substantial time and financial investment required for these changes offer no competitive advantage in product sales.

The Stapled Super challenge.

Similar to numerous concepts formulated within the Government, some are destined to be unsuccessful. The Stapled Super Fund, part of the Australian government's reform package, Your Future, Your Super, (YFYS) is another example. Based on industry feedback that the proposed implementation was not fit for purpose, it was nonetheless deployed. The previous requirement for the Superannuation Fund to be displayed on the Payslip, FAIR WORK REGULATIONS 2009 - REG 3.46, had to be amended because the YFYS reform did not align with the existing industrial legislation, which negated the previously provided benefits. Before the employees' stapled super fund could be sourced, the relationship between the parties had to be established, which was achieved by including the employee in a pay run and lodging it using Single Touch Payroll. The outcome is that the Superannuation Contribution could not be allocated as the employer did not know the employee's fund. Whilst there are "workarounds" that can be implemented, DSPs should not have to perform this additional effort to deal with the shortcomings of the Government solution. Furthermore, a fundamental benefit of Single Touch Payroll Phase 2 was negated: the inclusion of Tax File Number Declaration information in STP without requiring a separate process.

The Stapled Super Fund service is severely limited by its inability to handle bulk requests. It is designed for single-request processing only, making it unusable for scenarios such as onboarding a large number of new employees.

What Superannuation types are required to be reported within the Payday Super legislation?

For Payday Super, only the legislated SGAA QE amount is reported as Q.

The differences depicted in the chart may have been overlooked, which may impact the perception of the PDS requirements. The ATO has visibility of the contribution types that will be used for reconciliation purposes. DSPs will need to ensure the interdependency of the contribution types, which may have already been factored into their core design, aligning with the Member Account Transaction Service (MATS). Where this is not the case, the structure of their data may need to be changed, which may result in additional development work and further delays.

The Payday Super narrative from Super Funds.

The Super Members Council (SMC) recently promoted the idea that "payday super's a simple fix" to the current system, which has resulted in non-payment and underpayment of superannuation. They also stated that employees can view the contributions in real-time. The underpinning superannuation system is built on outdated infrastructure and does not provide real-time responses; these shortcomings have been known to the Super Industry since the introduction of SuperStream. Receiving error responses can take many days, and there is currently no confirmation message to verify that the contribution has been successfully allocated to the member's fund.

Additionally, if an employer processes a superannuation contribution in error, obtaining a refund from a Superannuation Fund can take several months. If the amount was substantial, then this delay could have a significant financial impact on the employer. The Payday Super Legislation mandates a shorter maximum timeframe of three days for returning unallocated contributions to a member's fund. This change, however, excludes the ongoing issue of refunds of super contributions in error, which are requested for various reasons, such as:

• overpayment to the employee and therefore overpayment of super contributions

• retrospective change of payment from OTE to non-OTE

• misclassification of a payment as OTE

The changes to SuperSteam are long overdue, but the proposed benefits are minor as they are not currently available.

As part of the changes to SuperStream, the ATO has introduced new functionality, specifically the Member Verification Request (MVR). This offering is proposed to enable software to verify that an employee's super fund details are valid before making a contribution; however, it is not intended for verifying details as part of routine processes, but rather for use only when contributing to a new member's super fund account. Until every Superannuation fund has developed and activated this service, any intended benefit remains unrealised, which isn't expected until 2027/28. The ideal scenario for both payroll DSPs and employers would be to conduct a comprehensive bulk check on all employees slated for a superannuation contribution before commencing critical payroll processes. However, using this check only in exceptional circumstances is a preferable alternative to not using it at all.

The improvement of error messages is long overdue, and many third-party providers have already worked diligently to address this issue.

What are the cash flow impacts for businesses?

While many businesses have been consistently fulfilling their Super Liability obligations, the introduction of the PDS payment requirements on 1 July 2026 will result in substantial financial implications for employers. This new mandate will require employers to make superannuation contributions at the time of employee pay cycles, potentially increasing the complexity of payroll processes and impacting cash flow management. As a result, organisations will need to thoroughly prepare and adjust their budgeting strategies to accommodate these changes, ensuring compliance and financial stability in light of the upcoming regulations.

The primary priority will be ensuring compliance with the PDS requirements, which may have knock-on impacts on other business processes, such as delays in payments to various business sectors, including suppliers. Unfortunately, this outcome is likely to create ripple effects that negatively impact the entire supply chain, potentially disrupting relationships and operations at multiple levels.

Employers can gain some advantages from payroll solutions that offer the capability to separate employer and employee contributions. By doing so, they can manage and distribute payments more effectively, ensuring alignment with all applicable legislative requirements. This flexibility helps maintain compliance, ensuring smoother cash flow management and a more efficient payment process. 

e-PayDay has always offered a built-in feature to automatically transfer Superannuation and PAYGW liabilities to separate holding accounts when processing a pay run. This feature ensures employers have the funds available to meet their obligations and is used by most of our customers.

The additional responsibility for employers is ensuring the integrity of employee-provided data.

With the introduction of PDS, employers are now shouldering an increased responsibility, navigating the intricate challenges and complexities that accompany its implementation.

• Taxpayer Identity - the employer is responsible if the Taxpayer's identity is mismatched, as contributions cannot be accepted if Super Clearing Houses/SSPs are unable to match the Taxpayer's identity.
  

• Corrections Framework - accommodates the correction of incorrect payroll data, and the STP design supports this reality. How will corrections impact the integrity of QE in STP, and what implications may lead to false SGC debts?
  

• TFN exemption codes - the existing use of TFN exemption codes does not align with the proposed PDS process, resulting in Super Clearing Houses/SSPs being unable to match the Taxpayer's identity.
  

• Refund of Super Contributions - If superannuation funds are unable to allocate a contribution to a Member, in most cases, it will be returned to the employer, providing a limited timeframe to resolve the issue, which may result in incurring an SGC. 

These issues are indeed significant, but there is no definitive guidance available. What about those employees who have left the country without finalising their Taxpayer data or Super Fund member accounts? SGC becomes an issue. What about making an arrears payment to cover an underpayment for former employees when the employer can't establish an "employment relationship", therefore not being in a position to request accurate data? We still have many unanswered questions, and not every scenario has been identified.

SG, OTE, QE and a minor technical change to STP.

During the engagement, the ATO mandated that, regardless of the outcome of PDS, both the Super Liability and Ordinary Time Earnings (OTE) must be reported. This diverged from the previous requirement, where only one or both fields may be reported, a practice followed by almost all DSPs, who typically reported just one. A significant benefit of reporting the Super Liability was that the ATO definition permitted the inclusion of industrial amounts, which more accurately reflected the amounts in payroll.

A known challenge was the difficulty in accurately identifying OTE due to insufficient ATO OTE guidance, which was subsequently updated on 6 August 2026. There are still many gaps within the new guidance, including the ambiguous treatment of SG for many typical payroll payments.

Payday Super technical changes required for Single Touch Payroll (STP) Phase 2.

With the introduction of the PDS legislation, a new requirement emerged: Qualifying Earnings (QE). This term refers to the various payments made to employees that are considered in calculating the Super Guarantee (SG) under the PDS framework. "QE day" refers to the day an employer pays an employee their QE, also known as payday.

A visual depiction of the changes due to the introduction of Qualifying Earnings (QE) reported as Q.

Separate Guidance has been provided to assist with the new legislative requirements.

Qualifying Earnings (QE) include:

• Ordinary Time Earnings (OTE), i.e. payments for ordinary hours of work, including certain types of paid leave, allowances, bonuses and lump sum payments
  

• all commissions paid to an employee
  

• salary sacrifice amounts that would qualify as QE had they not been sacrificed to superannuation
  

• earnings paid to workers who fall under the expanded definition of employee, including payments to independent contractors paid mainly for their labour

A key takeaway from QE is that employers must ensure their payroll systems have the required configuration capabilities and are responsible for identifying their needs and setting up the system in accordance with statutory requirements. 

• Once the employer begins reporting Q, there is no option to revert to reporting O. The challenge for DSPs will be to ensure that prior year amendments in STP only contain Super liability (L) and/or ordinary time earnings (O).

  
  

• It isn’t mandatory to report payments made to independent contractors paid mainly for their labour in STP, but if the choice is made to voluntarily report for these workers, both QE and Super Liability must be reported.

There is much more to Payday Super than the simple view the ATO shares in their publicly available “Fact Sheets”.

Additional guidance is still required by DSPs, and changes need to be addressed in relation to the information provided so far.

Commission Payments - are currently reported in the STP Income Stream Collection (PAYEVNTEMP256) as Overtime (PAYEVNTEMP263) and not included in the calculation of OTE. From 1 July 2026, commissions paid in respect of overtime are to be STP reported as Bonuses and Commissions (PAYEVNTEMP262) and are included in the calculation of QE. 

All Purposes Allowances - are excluded from the QE calculation when they continue to be paid during leave that is not QE, such as for Parental Leave or Workers' Compensation.

Employees under 18 - DSPs are still awaiting the ATO's advice on the definition of a "week" for employees under the age of 18, who must work more than 30 hours per "week" to qualify for SG. Payroll frequencies of fortnightly and monthly don't address the issue of a "week", and this definition is critical to the redesign of payroll solutions for those with less frequent pay cycles.

Newly emerging issues are being raised by DSP tickets, where the issue of misalignment between STP Pay/Update Date and QE day is created when the BECS bank (.aba) file, with an intended payment date on a non-business day, is processed early by the bank. Current ATO advice is that the QE day is the earlier date when the bank processes the payment, which is earlier than the intended payment date. 

These in-progress requirements have significant impacts on payroll product readiness.

Payday SGC, the pending "Super Robodebt" for employers.

This diagram illustrates the ATO Superannuation Guarantee compliance process and emphasises the potential risk associated with the automatic creation of an SGC debt.

An unintended consequence, but a very real concern, we have learned previously that when the Government uses a process to automatically generate a debt, requiring the recipient to dispute its accuracy, it is generally referred to as a "robodebt".

The ATO has not provided a transitional approach for employers; instead, it has taken an administrative position that is of little benefit to employers and only creates more confusion and concern.

The PDS Draft Practical Compliance Guideline PCG 2025/D5 outlines the factors considered when determining how the ATO will allocate its compliance resources to investigate employers who make their best efforts to comply from 1 July 2026 to 30 June 2027 (the first year of PDS). The draft compliance guidelines offer minimal protection or reassurance for employers, who may be regarded as low risk (green zone) by the ATO because of the following point from PDS 2025/D5:

11. If we obtain information that an employer has an SG shortfall in respect of a QE day, we are required to apply the law to that employer even if they fall within the low-risk zone outlined at Table 2 of this Guideline for the relevant QE days.

There may be many legitimate reasons an employer may have for not meeting their SG obligations,

• Temporary service blackouts may occur due to technical infrastructure faults or failures, cyber attacks, or data issues.
  

• A Superannuation fund may not accept new contributions or be closed for other operations if it is being wound up, merged, or changing its product offering, which is only identified after the pay run has been processed.
  

• The employee cannot provide a payee identity that matches the ATO taxpayer record; therefore, the super fund cannot allocate the employer's contribution.

Regardless of these events that are entirely beyond the employer's control, they could still be subject to a Superannuation Guarantee Charge (SGC).

The closure of the Small Business Clearing House (SBSCH) and the move to a user-pays model.

With the closure of the SBSCH, the ATO is transitioning one of its core services to a user-pays model. This means that employers will now be responsible for covering the costs of the mandatory requirements, rather than the government, which is a similar outcome to what occurred with STP.

While the SBSCH served a useful purpose, its features were limited. One significant drawback was the inability to upload a SAFF file, which could have saved employers time and made the service more efficient and valuable for a larger number of employers.

The ATO could have managed the entire super contribution process more effectively, as contribution information is already reported in real time through STP, and data is received directly from Super Funds via MATS. It would not have been a significant leap for the ATO to oversee the complete end-to-end process internally, from reporting to payments. Over 400,000 employers are now significantly impacted, as they must source and learn a new solution to meet their obligations.

What is the fundamental cause of the substandard outcomes concerning payroll when working with the Government?

Throughout the development of STP Phases 1 and 2, a substantial amount of time and effort was invested by some DSPs in educating the ATO about the nuances of payroll processes. This included the preparation and submission of a wide array of detailed documentation, outlining the various components and intricacies of payroll requirements. Additionally, extensive discussions were held with ATO representatives to delve deep into the complexities involved, ensuring that all parties had a clear understanding of the operational implications and compliance needs associated with the implementation of STP.

Due to changes in personnel within the ATO, all previous work has been rendered ineffective. In our current engagement, we are starting from the beginning, as ATO participants are having difficulty grasping basic payroll concepts, including terminology and definitions. Furthermore, we are now confronted on occasions with "undocumented requirements" or a decision has been determined "without explanation". 

The primary challenge with PDS is that it was introduced as a government-designed solution, which is frequently impractical and ill-suited for real-world application. Unlike STP, the development of PDS was not a collaborative effort; feedback provided by stakeholders was often not acted upon by the ATO without giving any explanation, with only some suggestions being addressed. Previously, the collaboration process involved forming groups, such as a Focus Group (FG) and a Micro Focus Group (MFG), to work efficiently through the objectives, identify issues and determine solutions. This well-proven method appears to be entirely ignored within our current PDS engagement.

There are many occasions where DSPs provide feedback and requests to the ATO to improve DSP product automation. For numerous years, we have been asking for lightweight, low-risk APIs to streamline the ability for DSPs to provide:

• Tax Scales

• Travel and Meal Allowance Thresholds
  

These are just a couple of examples of improvements in payroll products that offer significant benefits for employers. The primary goal of DSPs ongoing engagement is to address the diverse needs of businesses while supporting innovation and growth within the digital landscape.

There are no “firsts” with Payday Super.

All DSPs are in the same position, as there are no firsts with PDS. QE cannot be reported until 1 July 2026, as this is when the Legislative changes take effect. Many customers of DSPs have already been paying SG on payday, and a few are reporting both OTE and Super Liability.

Due to the technical requirements of STP and PDS, DSPs are forced into an unenviable position of using third-party offerings to meet legislative requirements. The ATO solutions can only be used by Super Gateways on behalf of employers; therefore, those services cannot be delivered by payroll, but instead consumed by payroll. These providers may be required to offer all the necessary infrastructure and technology stack to facilitate reporting through superannuation gateways, clearing houses, payment processors, and onboarding services, among others. The number may vary between DSPs, but nobody is exempt from this requirement, regardless of how their marketing team frames their promotional material.

Building solutions to meet the Payday Super compliance objectives does not offer rewards or recognition. Instead, it highlights the significant effort required by Digital Service Providers (DSPs) and employers to meet government requirements and mitigate risks for both parties.

DSPs aim to reduce the risk of employers facing unfair penalties by designing systems that minimise potential issues. One method we can use is integrating various government services; however, just because these are available doesn’t mean they meet the necessary standards to fulfil the specific requirements.

• STP Employee Commencement

• Stapled Superannuation Fund

• Fund Validation Service

• Member Verification Request (MVR)

The initial release of PDS development documentation required by DSPs was not provided until 15 December 2025.

The latest update of the STP2 Business Implementation Guide (BIG) was finally made available on 15 December 2025, which left only 198 days before the start date of PDS. Additional supporting guidance documents will continue to be published and updated by the ATO.

How is e-PayDay assisting employers to meet the Payday Super requirements?

e-PayDay has partnered with SuperChoice, the leading Clearing House service in Australia, to offer Superannuation Contribution reporting and payment without any additional fees.

We are excited to confirm our ongoing partnership with SuperChoice, a strategic collaboration that enhances our ability to streamline the validation, reporting and payment of Superannuation Contributions on payday. Many of our customers have come to appreciate the effortless integration of superannuation management that e-PayDay Go® already offers, ensuring that these critical financial obligations are handled seamlessly on payday. 

To reduce errors, we focus on the most critical aspect of Payday Super: the continual validation of both Employee Super Member details and the currency of the Superannuation Funds, seamlessly integrated into the natural business process.

We remain committed to delivering a comprehensive payroll solution tailored to meet the specific needs of Australian businesses. To further support our customers, we proudly offer e-PayDay Go® at no cost for businesses employing fewer than four employees. This initiative not only simplifies the payroll process but also helps our clients focus on their business without the burden of another financial overhead. We offer cost-effective subscription plans for organisations with four to hundreds of employees.

Accountants and Bookkeepers can also freely use e-PayDay Go® for clients. We offer centralised client management, and pay runs can be processed for up to three employees per ABN at no cost!

Get started now, don’t wait.

The employer's obligation is to review their current systems to ensure they are configured to meet the PDS obligations. The ATO also provides PDS information on their website.

Brett Reed is the founder of e-PayDay Pty Ltd, an Australian payroll software company. He is a veteran in the Australian payroll industry, with a career focused on developing software solutions that address complex regulatory and compliance requirements. Brett maintains regular engagement with Australian Government agencies, concentrating on solutions that benefit both employers and employees in response to proposed legislation.

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