MYOB says more than 20pc of SMEs risk insolvency under new payday super laws

Up to 20pc of small-to-medium enterprises could go broke under new federal payday superannuation rules, MYOB’s submission to Treasury claims.

McGrathNicol restructuring partner Kathy Sozou.

Small and medium enterprises are at an alarming risk of going insolvent when businesses are required to pay super at the same time as other pay entitlements, business management platform MYOB says.

Modelling from MYOB in its submission to Treasury’s consultation on Securing Australians’ Superannuation shows that 22.6 per cent of all SMEs would be at risk of insolvency because of payday super requirements.

Payday super laws announced last year by the Labor government take effect from 2026 and require businesses to pay super at the same time as wages. It is designed to stamp out unpaid super, which the ATO estimated to be worth $3.4bn in 2019-20.

MYOB said its modelling suggested more than one in five businesses would either have a negative bank balance if required to make additional super guarantee (SG) payments, or were already negative on at least one pay run day during the month.

“More frequent SG payments, especially when SG payments are aligned with payday, will result in more missed, late or erroneous payments and more penalties, compounding stress and cash flow pressures,” MYOB said in its submission. It noted superannuation clearing houses used by businesses could increase costs from $375 per quarter for a smaller business to $29,250 per quarter for larger and medium-sized businesses.

McGrathNicol partner Kathy Sozou told The Weekend Australian that cashflow was by far the most significant driver of insolvency for SMEs, adding that payday super would have an impact for many.

“In the SME space cash flow is the most significant factor in people’s vision making and in their ­assessment of their own solvency,” she said. “Most SMEs see accounting as something required to satisfy tax obligations, rather than using the data to run their business. As a result, cash flow is key because they often look at the balance to gauge whether they have money to pay someone and to keep the doors open.”

Data from the Australian Securities & Investments Commission shows that the number of companies insolvent this financial year was 33 per cent higher at 6431 than between July 2022 and February last year.

MYOB said that at present, and in times of economic uncertainty, all elements of cash flow in and out – including leave loading, remuneration and superannuation contributions – formed many businesses’ overviews of cash flow and business health.

It noted that many employee superannuation contributions formed a role in balancing the books and provided indicators about the strength of the business.

The SME sector accounts for more than 99 per cent of enterprises, according to MYOB, and employs more than 7.4 million people. Close to 60 per cent of small businesses have employees on a weekly pay cycle and payday super could result in many shifting to fortnightly or monthly pay.

“The benefits of earlier SG payments are unlikely to outweigh the impact of less frequent salary and wages payments for many workers and would certainly be outweighed by business closures and job losses,” MYOB said.

To mitigate the risk of insolvency amid economic uncertainty, MYOB said fines imposed by the tax office for late repayments should not be applied if catch-up payments were made prior to the next due date. It said when payments were missed or late as a result of financial distress, employ­ers should be supported with a payment plan without compounding the risks associated with cash flow pressures, such as insolvency.