tl;dr: Paying super on payday rather than quarterly means businesses can no longer use super accruals as a short‑term funding source. The amount of working capital “lost” depends on the wage bill, pay frequency and debtor terms. For many SMEs it equates to one to two pay cycles of wages plus super contributions. This article shows how to estimate the working‑capital requirement using simple formulas and highlights funding options. Use the Payday Super Calculator to input your numbers.
Estimating the working‑capital impact
- Calculate your weekly or fortnightly payroll: Sum all cash wages and salaries. For example, if your monthly wages total $100,000, the weekly wage bill is roughly $23,076 (100,000 ÷ 4.33).
- Apply the super rate: Multiply the weekly wage bill by 12 % to get the weekly super contribution. In this example, it is $2,769.
- Determine your pay cycle: Weekly pay cycles require super contributions every week; fortnightly cycles require contributions every two weeks.
- Model receivable timing: Estimate when customers pay invoices. If your average debtor days are 45, you may need funding for about three pay cycles before cash comes in.
- Calculate the funding gap: Funding gap ≈ (Number of pay cycles before receivables arrive) × (Wage bill + super). In the example, with 45‑day debtor terms and fortnightly pay, the business must cover two pay cycles (four weeks). Funding gap ≈ 2 × ($46,154 + $5,538) = $103,384. Under the quarterly system the business would hold approximately $120,000 of super accruals; under Payday Super it must fund $103,000 from cash or finance.
Drivers of working‑capital loss
- Pay frequency: More frequent pay cycles increase the number of super payments. Weekly payroll means 52 super payments a year; fortnightly means 26; monthly means 12. However, less frequent pay cycles may not suit all industries or awards.
- Debtor days: The longer customers take to pay, the larger the funding gap between paying wages/super and receiving revenue.
- Payroll intensity: Businesses with high payroll relative to revenue (e.g. hospitality, labour‑hire) experience a larger impact.
- Growth: Growing businesses often increase staff ahead of revenue. Paying super on payday may compound cash stress.
Funding solutions
The working‑capital “loss” is not a permanent cost; it is a one‑off increase in the amount of cash tied up in operations. Businesses can bridge this gap through:
- Short‑term working‑capital loans: Banks offer overdrafts and term loans with lower interest rates but strict approval criteria. Non‑bank lenders provide quicker approvals and unsecured options but at higher rates.
- Invoice financing: Advances cash against unpaid invoices, reducing the delay between sales and cash receipts.
- Equipment or asset finance: Free up cash by financing equipment purchases rather than paying upfront.
- Equity injection: Some owners may invest additional capital or seek private investment to bolster cash reserves.
FAQs
Is the working‑capital impact a recurring expense? No. The shift to Payday Super requires a one‑time increase in working capital. Once the business has adjusted, super payments become part of normal operations.
Can I use trade credit to cover the gap? Yes. Negotiate longer payment terms with suppliers to offset shorter terms with employees. However, do not use withheld super or GST as operating cash.
How can technology help? Modern payroll software integrates STP reporting and super payments. It can automate calculations of QE and schedule payments to meet the seven‑day deadline.
Definitions
- Debtor days: Average number of days customers take to pay invoices.
- Funding gap: The amount of cash needed to cover outflows before inflows arrive.
External links
- [ATO – Payment deadlines for Payday Super].
- [RBA – SME finance trends].
- GPS Finance Payday Super Calculator.
If you’re worried about financing weekly super payments, our brokers can help you build a working-capital strategy. Contact GPS Finance Group or collaborate with us as a partner.