With Payday Super commencing on 1 July 2026, the countdown is on for Australian employers to ready their governance framework. While many employers are focused on the operational challenge of aligning contribution payments with pay cycles, equal attention should be given to augmenting governance for revisions in the calculation of superannuation entitlements.
In this second instalment of PwC’s series on preparing for Payday Super, we give a brief overview of the key changes with respect to calculating employees’ entitlements and highlight critical governance considerations employers should keep in mind.
From Ordinary Time Earnings to Qualifying Earnings
The Payday Super reform introduces a new compliance framework, new terminology, and critically, a new earnings base against which superannuation guarantee (SG) obligations are calculated – shifting from Ordinary Time Earnings (OTE) to Qualifying Earnings (QE). Further, from 1 July 2026, employers must report both QE and each employee’s super liability through Single Touch Payroll (STP) each payday.
Current
SG is currently calculated at 12% of an employee's OTE, broadly defined as earnings in respect of ordinary hours of work, including over-award payments, shift loadings and commissions, but excluding certain termination payments such as unused leave.
From 1 July 2026
Superannuation will be calculated at 12% of QE, which encompasses a broader set of payment categories, including:
- OTE, effectively being payments currently considered OTE
- Commissions, regardless of characterisation (inclusive of overtime-related commissions)
- Directors' fees
- Contractor payments, for contracts/work captured under sections 12(3) and 12(8) of the Superannuation Guarantee Administration Act 1992 (SGAA), and
- Salary sacrifice amounts towards additional superannuation.
Practical considerations for employers
The change from OTE to QE requires employers to critically review their current governance across several key areas to ensure accurate superannuation calculation under Payday Super, including:
- Pay code configuration – Is the payroll system appropriately configured to capture QE, including applicable incentive payments (e.g. commissions)?
- STP reporting – When will your payroll software be updated to facilitate QE and super liability reporting in STP? Have you reviewed your system mapping for reporting QE (for example, pay codes relating to termination payments may currently combine both superable and non-superable elements)?
- Directors' fees – Are any directors' fees paid outside of payroll? Have you reviewed superannuation implications and how Payday Super (and STP reporting) will be managed where the Director invoices?
- Contractors that are superable under sections 12(3) and/or 12(8) - What is your pre-engagement and/or onboarding governance to identify contractors considered 'employees' for SG purposes? Where a contractor is superable, have you considered the process and frequency through which accounts payable will share information with payroll to meet the 7-days requirement?
No more quarterly caps
Another significant change under Payday Super is the maximum contributions base (MCB), which shifts to an annual basis. This is likely to impact high-earnings employees and those with variable pay (i.e. bonuses/commissions) and may affect the distributions between cash and superannuation through the year.
Current
The MCB operates quarterly (resulting in up to $7,500 in superannuation per quarter). Once reached, per the SGAA, an employer is not required to pay superannuation for the remainder of that quarter.
From 1 July 2026
The MCB shifts to a rolling, annual calculation. If QE paid during a financial year causes total QE (for that employee) to exceed the MCB, the excess is treated as nil for SG purposes. An employer must contribute 12% of an employee’s QE till the employee reaches $30,000 in contributions for the year, with no quarterly capping.
Practical considerations for employers
The annual MCB will require employers to identify the impacted cohort and what the impact is, and communicate changes. Some considerations include:
- Current entitlements and approach – Does your employment arrangements (e.g. industrial instruments, contracts) allow for capping? Do you currently cap or pay superannuation on all earnings?
- Remuneration structure – Are employees on total remuneration packages (superannuation-inclusive) or is superannuation on top? Is variable pay inclusive or exclusive of superannuation? Have you considered the impact across different structures for different employee cohorts, and the timing of super contributions versus cash payments for total remuneration packages?
- Ongoing calculations and monitoring - How does your payroll system currently calculate the cap (e.g. fixed amounts, up to the cap)? What updates are required to track cumulative QE against the annual MCB on a rolling basis?
- Communication strategy - Will you communicate capping changes and increased STP reporting visibility? For example, superannuation-inclusive packages may result in skewed distributions between superannuation and cash compared to previous years.
- Shortfall exemption certificate - For new employees with certificates (which exempts the new employer from the super guarantee charge (SGC) if they don't make SG contributions for the period covered by the certificate), how will you configure payroll to ensure super is not paid in the first financial year but resumes the following year?
Removal of the Late Payment Offset
The removal of the Late Payment Offset (LPO) fundamentally changes how employers address missed or late superannuation contributions.
Current
If an employer makes a late SG payment before lodging an SG charge statement (or before the Commissioner makes an SGC assessment), they can utilise the LPO to reduce the SGC, applying it to the erroneous period.
From 1 July 2026
Employers will no longer be able to choose the period to which a late payment applies. Late contributions will automatically apply to the earliest payday with an outstanding SG shortfall. In practice, this sounds simple. However, for an employer with recurring remittance or calculation issues, it can create a tail of continuing SG shortfalls until the problem is identified and resolved.
Practical considerations for employers
Removal of the LPO will mean that employers need to be on top of error identification and rectification much quicker than under the current legislation, and therefore should consider:
- Process adaptation - Do your current processes rely on the flexibility of the 28-day quarterly deadline, or potentially even the LPO, to manage cash flow or address inadvertent errors? If so, how will you adapt?
- Real-time testing and refinement - Have you considered dry-run tests of payroll and remittance processes before go-live? Once live, is there a system to address real-time exceptions reporting?
- Error rectification - What processes exist to identify and rectify errors promptly?
- Escalation procedures and responsibility - Have you reviewed your internal escalation procedures for situations where errors occur and designated who will make voluntary disclosures under Payday Super?
Key takeaways
Payday Super represents a fundamental mindset shift in how superannuation obligations are calculated, paid and reported. The introduction of QE, the treatment of salary sacrifice, the inclusion of superable contractors, the new MCB and the LPO removal all demand careful attention and planning.
With four months until Payday Super commences, now is the time for employers to engage with, and augment, their current governance frameworks, and ensure their systems, processes and people are ready for the change.
If you have any further questions about Payday Super, please reach out to your PwC Workforce advisor or visit our Payday Super website to stay informed with Payday Super developments. We also invite you to join our Employment Taxes Annual Update webcast on 4 March 2026 to stay up-to-date on the latest developments and practical considerations for your organisation.
