Superannuation obligations for small business owners, who to pay, how much, and when

Superannuation is the payroll obligation small business owners most often treat as an afterthought, and it is the one the ATO watches most closely. Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SG Act), every employer must pay a percentage of each eligible employee's earnings into a complying super fund within strict timeframes. The percentage is 12% of ordinary time earnings, a rate that has applied since 1 July 2025. The timeframes changed fundamentally on 1 July 2026: "payday super" now requires contributions to reach an employee's fund within 7 business days of each pay run, replacing the old quarterly cycle.

Missing these obligations is expensive. The ATO can impose the Superannuation Guarantee Charge (SGC), which is calculated on top of the unpaid amount and is not tax-deductible. This guide explains who you must pay super for, how much, when, and what to do if you fall behind, so your payroll stays compliant and the charge stays off your tax return.

Who the super guarantee applies to

The SG obligation attaches to employers, and the SG Act deliberately defines "employee" and "employer" more broadly than everyday usage (s 12 of the SG Act). In practice, you must pay super for:

Employees: full-time, part-time and casual staff, whatever their earnings. There is no minimum earnings threshold: the old $450-a-month rule was removed from 1 July 2022, so the obligation starts at the first dollar of ordinary time earnings.
Directors who are paid for their duties: under s 12(2), a person entitled to payment for performing duties as a member of a body corporate's executive body, such as the board of directors, is an employee of that body corporate. If your company pays you wages for your work, it must pay SG on those amounts like any other salary.
Contractors engaged wholly or principally for their labour: under s 12(3), a person who works under a contract that is wholly or principally for their labour is an employee for SG purposes. An ABN and a monthly invoice do not, by themselves, avoid the obligation. This is covered in more detail below.
Some under-18s and domestic workers: employees under 18 years old, and people employed for private or domestic work, generally qualify for SG only if they work more than 30 hours in a week.

The obligation does not reach sole traders or partners. Neither is an employee of their own business, so there is no SG requirement on income you draw from a sole trader structure or a partnership. Trusts are different: if a trust employs people, including a working director or trustee paid wages through a corporate trustee, SG applies to those wages.

Sole traders and directors paying themselves

If you are a sole trader, nothing requires you to pay yourself super. The strategic question is different: voluntary contributions into your own fund are one of the most tax-effective ways to build retirement savings, and many sole traders treat the 12% SG rate as a personal benchmark. Two rules matter. First, concessional contributions, including personal contributions you intend to claim as a deduction, count against an annual cap that the ATO indexes each year. Second, to claim a deduction you must give your fund a notice of intent to claim a deduction before you lodge your tax return. Your accountant can confirm the current cap figures and the deduction paperwork for your circumstances.

If you trade through a company and pay yourself a wage, the company must pay SG on that wage at 12%. If you take only dividends, no SG applies to those payments, because dividends are not ordinary time earnings. Choosing the right mix of wage and dividend is a tax question for your accountant, not a decision to make in payroll by default.

The core duty: 12% on ordinary time earnings

The SG rate is 12%. It rose from 11.5% on 1 July 2025, and the charge percentage in the SG Act is now set at 12 (s 17A). No further increases are currently legislated.

The base is ordinary time earnings (OTE), defined in s 6 of the SG Act as the employee's earnings in respect of ordinary hours of work, plus over-award payments, shift loadings and commission, but not lump-sum payments made on termination for unused sick leave, annual leave or long service leave. For most employees OTE is simply their salary or hourly rate. Commissions always count, and allowances and loadings need a case-by-case look at how they are characterised under the award or agreement.

Salary sacrifice does not reduce the obligation. The law treats the sacrificed amount as earnings on which super is still payable, so a salary-sacrifice arrangement must not become a way of cutting the 12%.

The ATO also indexes a maximum contributions base each year. SG is calculated on OTE up to that cap per quarter, so very high earners do not generate an unlimited obligation.

Whether a bonus attracts SG depends on how it is structured and what your award or agreement says about it. Some bonuses count as OTE, others do not. If you pay discretionary bonuses, confirm the treatment rather than guessing, because an error usually shows up as an underpayment.

Payday super: contributions are due with each pay run

The single biggest change to super compliance in years took effect on 1 July 2026. Under the payday super regime, the SG Act creates an individual superannuation guarantee amount on the day you pay qualifying earnings to an employee, and that amount must be satisfied by contributions received within the "usual period": the 7 business days after payday (s 6 of the SG Act).

Before this change, employers had until 28 days after the end of each quarter. That safety margin is gone. If your payroll still pays super quarterly, or batches payments at quarter-end, you are now in breach as soon as a contribution is received late.

Two details smooth the transition:

The first contribution you make to a new fund for an employee can be received within an extended period of 20 business days after payday.
The charge can be reduced by making missed contributions before the ATO assesses it, but the interest component keeps accruing until the contribution lands.

The practical fix is to pay super in the same payroll run that pays wages, or within the 7 business days after it. Payroll software that supports SuperStream can generate and lodge the payment and the data file automatically.

Choice of fund, stapled funds and SuperStream

Three fund-related duties sit alongside the payment itself:

Employee choice: Within 28 days of an employee starting, you must give them a standard choice form so they can nominate a fund (s 32N of the SG Act). Pay contributions to the fund they choose.
Stapled fund first: If a new employee does not nominate a fund, you must request their stapled fund from the ATO. The stapled fund is the fund that already holds their existing super, identified under Part 3A of the SG Act (s 32Q). If a stapled fund exists, pay to it. Only if there is no stapled fund may you use your default MySuper product. Record the request and its outcome for each new hire.
SuperStream: Contributions must be paid electronically, with the accompanying data lodged in the SuperStream standard. Cheques and manual bank transfers do not comply, and the ATO can treat a contribution as not made if it is not accompanied by the required data.

Contractors: the wholly or principally for labour test

The contractor rule is where small businesses most often get caught. Under s 12(3) of the SG Act, a person engaged under a contract that is wholly or principally for their labour is treated as an employee for SG, even if they hold an ABN and issue invoices. The test focuses on the substance of the arrangement: is the person paid for their personal work and skill, and are they required to perform the work themselves? If they can send a substitute or deliver a result using their own staff and equipment, the engagement is more likely to be a genuine contractor arrangement.

Assess each contractor relationship on its own facts before work starts, and put a written contractor agreement in place that reflects the actual arrangement. Where the engagement sits near the line, targeted advice before the first payment is far cheaper than an SGC assessment covering every payment made.

What happens if you pay late or miss a payment

If contributions are not received within the required period, the ATO can assess the Superannuation Guarantee Charge. The SGC is deliberately more expensive than paying the super, and it is made up of:

the shortfall, being the 12% that should have been contributed;
a notional earnings component, calculated daily on the shortfall at the general interest charge rate until the charge is assessed (s 19A of the SG Act); and
an administrative uplift amount (s 19B).

Once assessed, any unpaid charge itself attracts the general interest charge. The SGC is not tax-deductible, so the full amount lands on your business's bottom line. For a small business, a single quarter of missed super can produce a charge several times the value of the original contributions.

Two further exposures:

Choice loading: Employers who breach the choice-of-fund obligations can face a loading on the charge, capped at $1,200 per period (s 20C of the SG Act).
Part 7 penalties: If assessed SGC remains unpaid, the ATO can issue a notice to pay and then impose a penalty of 25% of the unpaid amount, rising to 50% for repeat non-payment within 24 months (s 59C).

The ATO also has the usual recovery tools. It can garnish debts, and where a company owes SG, directors can face personal liability through director penalty notices in some circumstances. Employees can report unpaid super directly, and the ATO data-matches payroll and contribution records, so arrears are increasingly difficult to hide.

A super compliance checklist for your business

Run through this list each pay cycle to keep your payroll compliant:

Confirm your payroll applies the 12% rate to the right base: OTE, not the post-salary-sacrifice figure.
Pay super in every pay run so contributions reach funds within 7 business days of payday.
Use SuperStream-compliant software and keep the payment receipts.
Give every new employee a standard choice form within 28 days, and request the stapled fund from the ATO before using a default fund.
Review contractor engagements against the s 12(3) test and keep written agreements on file.
Keep records: fund details, choice forms, stapled fund requests, contribution amounts, payment dates and SuperStream confirmations.
If you have missed a payment, speak to a tax adviser early. Voluntary disclosure can reduce penalties, and interest compounds the longer you wait.

When to get professional help

Super sits at the intersection of tax and employment law, and the two disciplines usually need to work together. Your accountant should own the numbers: confirming the current contribution caps if you make voluntary contributions, structuring director remuneration, and setting up payroll so the 12% and the payday super timing are correct. A lawyer should own the classification questions: whether a contractor is really engaged for their labour, whether your contractor agreements reflect the working relationship, and what to do if your company has missed SG payments and directors are exposed. Most small businesses benefit from at least one joint review of both.

The change most employers are still adjusting to

If there is one action to take this week, it is to test your most recent pay run against the payday super rule. Since 1 July 2026, super is due within 7 business days of each payday, and the old habit of paying super at quarter-end is now a guaranteed SGC assessment with interest. Confirm that contributions from your last pay run reached each employee's fund on time, and if your payroll still runs on a quarterly cycle, move it to every pay run before the ATO's data matching finds the gap for you.