“When an SMSF fails to lodge its annual return on time, the fund is removed from the Super Fund Lookup (SFLU) register, meaning it cannot receive employer SG contributions until lodgement is complete. While we understand this rule is intended to encourage timely lodgement by trustees, it can create significant issues for employees – especially where SG contributions are required to be made on payday.”

The IFPA continued that in such cases, the only alternative is to redirect contributions to another fund until the SMSF is reinstated on Super Fund Lookup, which can cause administrative burden and confusion for both employees and employers.

“We recommend that employees be given the opportunity to challenge this rule where the circumstances are beyond their control. In our view, it should be reasonable for a fund to continue receiving SG contributions in genuine, one-off cases of late lodgement,” the submission read.

While the IFPA said it supports the ATO imposing penalties on trustees who consistently fail to meet their obligations such as those who have not lodged returns for several years, it said applying the same penalty to all SMSFs, regardless of the nature or frequency of the delay, is overly harsh.

“Trustees who are late with lodgement on a one-off or minor basis should retain the ability to receive SG contributions. A more proportionate and flexible approach would strike a better balance between encouraging compliance and ensuring fairness for SMSF members and their employers,” it said.

The IFPA also urged the government to implement other refinements to the legislation to ease the compliance burden on small businesses and improve the system’s fairness and functionality.

“Payday super is a win for employees, but to make it work in the real world, we need a system that’s modern, efficient, and fair – especially for small businesses,” Natasha Panagis, head of technical services at IFPA, said.

The association made a number of other key recommendations to improve the payday super regime, including exempting micro businesses and allowing them to continue making quarterly SG contributions.

“Alternatively, micro businesses should either transition to a monthly superannuation guarantee (SG) payment cycle or be given a longer implementation period, such as an additional two years, to adapt to the payday super model,” the submission read.

It also recommended that the government regulate super clearing houses and hold them accountable for timely payments, and that employers should not be penalised for delays outside their control.

“Small employers will face the biggest hurdles under the new system. A phased rollout and realistic timelines will give them a fair chance to succeed,” Panagis said.

“And for employees with SMSFs, we need more flexibility – one late lodgement shouldn’t jeopardise their super.”

To truly deliver on the promise of payday super, Panagis said, the underlying systems must be brought up to speed.

“That means upgrading superannuation clearing houses, payment platforms, and payroll systems to handle more frequent contributions in real time. Without these improvements, we risk setting employers up to fail.”