One of the underlying changes in the Payday Super reforms is a shift in how Super Guarantee (SG) contributions are actually calculated. From 1 July 2026, employers work off a single measure called qualifying earnings, replacing the two-part system of "ordinary time earnings" and the broader "salary or wages" base that applied previously. If you run payroll for staff with anything beyond a straightforward salary, think bonuses, allowances, commissions, or leave payouts, it's worth understanding where the lines now sit.

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The general concept

Qualifying earnings is broadly similar to the old "ordinary time earnings" concept, so if your payroll processes were already built around that measure, most of what you're doing won't change. The core principle remains the same: earnings connected to an employee's ordinary hours of work generally attract SG, while amounts specifically tied to hours outside ordinary hours (like overtime) generally don't.

The differences that do exist are worth checking against your own payroll, because getting them wrong is exactly the kind of gap the ATO's improved real-time visibility is designed to catch.

What's included in qualifying earnings

• Salary and wages for ordinary hours of workPublic holiday pay that would otherwise be ordinary hours
  • Bonuses, unless they relate solely to work performed entirely outside ordinary hours
  • Remuneration paid to working or non-working directors
   
  • Salary sacrificed superannuation, where the sacrificed amount would otherwise have counted as qualifying earningsAllowances for adverse conditions and retention allowances
   
  • Rostered days off (when taken and paid at ordinary rates)Sick, personal and carer's leave
   
  • Annual leaveLong service leave, including if paid as a lump sum other than on termination
   
  • Payment in lieu of noticePayments to workers captured by the extended SG definition of "employee", including many contractors paid mainly for their labour, and directors' fees
  
  
  • Overtime payments, including above-award loadings and penalties specifically tied to non-ordinary hoursGenuine expense allowances an employee is expected to fully spend in the course of their work (for example, a tool allowance)
   
  • Reimbursements that give rise to a fringe benefit or exempt benefitOn-call allowances for hours an employee wouldn't normally be working
   
  • Annual leave loading that relates to lost overtime opportunityEmployer or government-paid parental leave
   
  • Long service leave paid under a portable long service leave schemeMost termination payments, including unused annual leave, unused long service leave, unused personal/carer's leave, unused rostered days off, genuine and non-genuine redundancy payments, and compensation for wrongful dismissal
   
  • Payments for domestic or private work of no more than 30 hours a week (such as paying someone for household duties)

What's excluded from qualifying earnings

Payments that generally fall outside qualifying earnings(and so don't attract SG) include:

There's also a notable technical change: some payments that previously attracted SG only if there was a broader "salary or wages" shortfall, like clearly identified overtime, or unused leave on termination, no longer attract SG at all under the new single qualifying earnings test.

Employees who are excluded altogether

Separately from the payment types above, certain categories of employee remain excluded from SG altogether under the new rules, largely unchanged from the current system. This includes part-time employees under 18 working no more than 30 hours a week, and employees on certain short-stay visa categories, where relevant conditions are met.

The ATO's approach in year one

Recognising that this is a significant change for employers to implement, the ATO has released compliance guidance setting out a"traffic light" style approach for the first year of Payday Super (covering the period from 1 July 2026 to 30 June 2027). Employers assessed as low risk generally won't attract review, medium-risk arrangements are a lower investigative priority, and high-risk arrangements will be actively investigated. Importantly, this compliance approach doesn't change the underlying law;l if the ATO establishes that an employer genuinely has an SG shortfall, the law will still apply regardless of which risk category they otherwise fall into.

The takeaway

Most employers' payroll won't need a wholesale rebuild for qualifying earnings, since the concept largely mirrors the old ordinary time earnings test. But the handful of genuine differences, particularly aroundbonuses, commissions, and leave payments on termination, are exactly the kind of detail that's easy to miss in a payroll system that hasn't been updated. Reviewing how your payroll software classifies these payment types before 1 July 2026 is time well spent.

This article is general information only and does not constitute tax advice. Whether a specific payment counts as qualifying earnings depends on its precise nature and your award or employment agreement terms. Contact Causbrooks to review your payroll classifications.

• Loadings and penalty rates tied to ordinary hours (shift, weekend, higher duties) Commissions, even where they're earned entirely outside ordinary hours
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• Remuneration paid to working or non-working directors
 
• Salary sacrificed superannuation, where the sacrificed amount would otherwise have counted as qualifying earningsAllowances for adverse conditions and retention allowances
 
• Rostered days off (when taken and paid at ordinary rates)Sick, personal and carer's leave
 
• Annual leaveLong service leave, including if paid as a lump sum other than on termination
 
• Payment in lieu of noticePayments to workers captured by the extended SG definition of "employee", including many contractors paid mainly for their labour, and directors' fees

What's excluded from qualifying earnings

Payments that generally fall outside qualifying earnings(and so don't attract SG) include:

• Overtime payments, including above-award loadings and penalties specifically tied to non-ordinary hoursGenuine expense allowances an employee is expected to fully spend in the course of their work (for example, a tool allowance)
• Reimbursements that give rise to a fringe benefit or exempt benefitOn-call allowances for hours an employee wouldn't normally be working
• Annual leave loading that relates to lost overtime opportunityEmployer or government-paid parental leave
• Long service leave paid under a portable long service leave schemeMost termination payments, including unused annual leave, unused long service leave, unused personal/carer's leave, unused rostered days off, genuine and non-genuine redundancy payments, and compensation for wrongful dismissal
• Payments for domestic or private work of no more than 30 hours a week (such as paying someone for household duties)

There's also a notable technical change: some payments that previously attracted SG only if there was a broader "salary or wages" shortfall, like clearly identified overtime, or unused leave on termination, no longer attract SG at all under the new single qualifying earnings test.

Employees who are excluded altogether

Separately from the payment types above, certain categories of employee remain excluded from SG altogether under the new rules, largely unchanged from the current system. This includes part-time employees under 18 working no more than 30 hours a week, and employees on certain short-stay visa categories, where relevant conditions are met.

The ATO's approach in year one

Recognising that this is a significant change for employers to implement, the ATO has released compliance guidance setting out a"traffic light" style approach for the first year of Payday Super (covering the period from 1 July 2026 to 30 June 2027). Employers assessed as low risk generally won't attract review, medium-risk arrangements are a lower investigative priority, and high-risk arrangements will be actively investigated. Importantly, this compliance approach doesn't change the underlying law;l if the ATO establishes that an employer genuinely has an SG shortfall, the law will still apply regardless of which risk category they otherwise fall into.

The takeaway

Most employers' payroll won't need a wholesale rebuild for qualifying earnings, since the concept largely mirrors the old ordinary time earnings test. But the handful of genuine differences, particularly aroundbonuses, commissions, and leave payments on termination, are exactly the kind of detail that's easy to miss in a payroll system that hasn't been updated. Reviewing how your payroll software classifies these payment types before 1 July 2026 is time well spent.

This article is general information only and does not constitute tax advice. Whether a specific payment counts as qualifying earnings depends on its precise nature and your award or employment agreement terms. Contact Causbrooks to review your payroll classifications.