Australian small and medium-sized businesses must act now ahead of the introduction of Payday Super on July 1, with invoice finance specialists Earlypay warning the reform will reshape payroll, tighten cashflow and leave little flexibility for SMEs at a time when the economic outlook is bleak.
Under the changes, employers will need to pay super contributions alongside wages, with funds required to reach an employee’s super fund within seven business days of payday. While the reform is designed to improve retirement outcomes and reduce unpaid super, it will also force many businesses to rethink how super is managed in practice.
Earlypay Chief Executive Officer James Beeson said too many SMEs were still treating Payday Super as a compliance issue when it will have a much broader impact on day-to-day operations.
“Quarterly super has historically acted as an unofficial cash buffer for thousands of businesses because it could be paid with up to a three-month delay,” Beeson said.
“Moving to Payday Super removes that buffer overnight. 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.”
The preparation window is especially important for employers still relying on the Australian Taxation Office’s Small Business Superannuation Clearing House, which closes permanently on June 30. Those businesses will need to move to an alternative payment method such as payroll software or another super solution.
Judy White, Executive Director of the Corporate & International Tax team at BDO, one of the world’s leading audit and accounting organisations, said businesses should use the coming months 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.
“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.”
For many SMEs, payroll will shift from a periodic task to a continuous operational process. Businesses with weekly, fortnightly and monthly pay cycles will face added complexity, while rejected payments due to incorrect employee data could result in contributions being treated as late, exposing employers to penalties and interest.The pressure will be greatest in sectors that have proportionally high payroll costs such as labour hire, recruitment, cleaning & security services, transport and construction where wages are often paid weekly but customer invoices may not be settled for weeks or months.
Beeson said Payday Super was landing at a time when SMEs were already battling a tsunami of challenges, including sharp rises in fuel costs, wages, insurance premiums and borrowing costs with the RBA continuing to raise the cash rate.
“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.”
Beeson said, “In challenging economic conditions it’s common for SME customers to want to keep the cash longer themselves and drag out payment terms just when SMEs need it most. 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.
“Time and time again, it’s the smaller businesses that get their margins and cash flow squeezed by the big guys when things get tough”, Beeson said.
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ABOUT EARLYPAY
Earlypay Limited (ASX: EPY) is an Australian-listed lender which delivers flexible working capital finance solutions Australian businesses can rely on.
Earlypay has supported thousands of Australian SMEs for more than 25 years through solutions such as invoice finance and equipment finance - helping them improve cash flow, unlock capital and access a broader range of assets with confidence.
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For further information, please contact:
Mark Eggleton
New Romans
0430 095 111