Guide

Qualifying earnings (QE) and Payday Super: what changes for employers

Learn what qualifying earnings payday super means for you, streamline pay runs, boost compliance and protect cash flow.

Chesney McDonald–Small business & finance writer/editor. Read Chesney's full bio

Published Saturday 25 July 2026

Key takeaways

Qualifying earnings (QE) is the new base for calculating super under Payday Super, replacing ordinary time earnings (OTE) from 1 July 2026. Map your pay items to the correct QE treatment and update payroll before the changeover date.
Many familiar items such as ordinary time earnings, commissions, and some industrial instrument-driven leave types count towards QE, while expense reimbursements, paid parental leave, and most overtime are excluded.
You calculate 12% super on QE each pay run up to the annual maximum contributions base, and report via Single Touch Payroll (STP) with updated fields. Test your outputs before the changeover date.
Validate employee super fund details and align super payments with payday well ahead of 1 July 2026 to avoid late payment penalties.

What is Payday Super?

Payday Super is a reform to Australia's superannuation guarantee (SG) system that requires employers to pay super at the same time as wages, rather than quarterly. The changes are planned to start on 1 July 2026. From that date, you change both when you pay super and how you calculate it, using a new measure called qualifying earnings (QE).

The reform responds to a significant amount of unpaid superannuation, which the ATO estimated to be over $6 billion in the last financial year. This reform is designed to make sure employees get their super faster and more frequently, and it can help you manage cash flow more effectively by aligning super payments with your regular payroll cycle.

Before 1 July 2026

Under the current rules, you calculate super on ordinary time earnings (OTE) and pay contributions within 28 days of the end of each quarter. The four quarterly due dates are 28 October, 28 January, 28 April, and 28 July. This can lead to large, infrequent payments and make it harder for employees to track their super balances over time.

From 1 July 2026

Under the new rules, employers will be required to pay super contributions at the same time they pay their employees' salary and wages, with payments to be received by the super fund within seven business days. You calculate contributions on qualifying earnings each pay run, pay them through your super payment process alongside payroll, and report via Single Touch Payroll (STP) at the same time.

Late payments attract a new Payday Super charge, replacing the existing super guarantee charge framework. If you pay super late, the ATO can apply additional charges of 25% or 50% of the unpaid super guarantee charge (SGC), depending on your history. Paying super on time helps you avoid these extra costs.

Super funds will also have new obligations, needing to process contributions much faster than before by allocating or returning them within three business days of receipt. If you run payroll weekly, super processing becomes a weekly task; if you pay fortnightly, it becomes fortnightly. The payment cadence follows your payroll cycle.

What is qualifying earnings under Payday Super?

Qualifying earnings is the new base on which you calculate superannuation guarantee contributions under Australia's new Payday Super reformsPreviously, many employers relied onoOTE as the primary measure for super calculations. From mid-2026, the Australian Taxation Office requires you to identify and report qualifying earnings each pay run, then pay super in line with payday rather than quarterly.

This shift means you need to understand exactly which payments to your employees count as QE and which don't. The change is designed to give employees faster access to their super and to simplify compliance by aligning super payments with regular payroll cycles. However, it also demands careful mapping of your pay items, updated payroll processes, and new STP reporting fields.

Why the change matters

Under the old quarterly payment cycle, employers had up to 28 days after the end of each quarter to pay super. With Payday Super, you initiate the payment with each pay run and need to ensure it reaches the employee's fund within seven business days, which can improve cash flow visibility but requires tighter payroll discipline.

You'll also need to ensure your payroll software or service can handle the new QE definitions and STP Phase 2 reporting requirements. The ATO provides detailed guidance on what counts as qualifying earnings, including worked examples. Review this guidance with your enterprise agreements, modern awards, and employment contracts so you can confirm how to treat each pay item in your system.

QE vs OTE: what's the difference?

Many employers are familiar with OTE as the foundation for super calculations. Qualifying earnings is broader in some areas and narrower in others. For example, certain types of leave that were excluded under OTE may now count towards QE if they're paid under an industrial instrument. Conversely, some payments that were historically included in OTE may be excluded from QE if they fall outside the ATO's new definitions.

The key is to map each pay item in your payroll system against the ATO's list of inclusions and exclusions. This mapping exercise should happen well before 1 July 2026 so you can test your calculations, train your team, and communicate changes to employees.

For more on payroll foundations, see this guide to understanding online payroll.

What counts as qualifying earnings?

The ATO defines qualifying earnings as payments made to employees for work performed, plus certain other payments specified in industrial instruments or by law. The list is detailed, but the most common inclusions are ordinary time earnings, commissions, salary sacrifice amounts, and some types of paid leave.

Ordinary time earnings

Ordinary time earnings remain the core of QE. This includes:

base wages or salary for ordinary hours worked, whether paid hourly, weekly, fortnightly, or monthly
piece rates and output-based pay for ordinary hours
shift loadings and allowances that form part of ordinary pay under an award or agreement
payments for employees with no set hours, calculated using the ATO's ordinary time earnings definition

If your employees work variable hours or are paid by output rather than time, you'll need to apply the ATO's guidance to determine what portion of their pay counts as OTE and therefore as QE.

Commissions and salary sacrifice

Commissions earned by employees count as qualifying earnings, even if they're paid irregularly or in arrears. For example, under Payday Super law, all commissions are qualifying earnings and will be subject to super, including those for work performed entirely outside ordinary hours. You calculate super on the commission amount in the pay period it's paid, not when it's earned.

Salary sacrifice arrangements also count towards QE. If an employee agrees to sacrifice part of their salary into super, the pre-sacrifice amount is the base for calculating the SG contribution. This ensures that employees who choose to salary sacrifice don't reduce their employer super entitlement.

For more on how to structure employee pay, see our guide to paying employees.

Industrial instruments and leave types

Certain types of paid leave count as qualifying earnings if they're paid under an industrial instrument such as a modern award or enterprise agreement. The following leave types are commonly included:

ancillary leave (such as ceremonial leave, cultural leave, or defence reserve leave)
long service leave (LSL) taken during employment

However, some payments, like paid parental leave, fall outside ordinary time earnings (OTE) and qualifying earnings (QE), even if an enterprise agreement says you should pay super on them.

LSL taken while an employee is still employed counts as QE, but LSL paid out on termination doesn't. You need to check your award or agreement to confirm which leave types attract super, and ensure your payroll system maps these correctly.

Contractors captured by super guarantee

Some contractors are deemed employees for super purposes under the ATO's super for contractors rules. If a contractor meets the definition of an employee for super, their payments count as qualifying earnings and must be reported through STP. Common examples include contractor who:

are paid wholly or principally for their labour
work under your direction or control
are engaged under certain labour-hire arrangements

You should review all contractor arrangements with your accountant or legal adviser to confirm whether super is payable, and if so, whether the payments count as QE.

What is excluded from qualifying earnings?

Only some payments to employees count as qualifying earnings. The ATO provides a clear list of exclusions, and it's important to map these in your payroll system to avoid overpaying super or generating incorrect STP reports.

Overtime payments for hours worked beyond ordinary time are generally excluded from QE. This includes:

overtime at time-and-a-half or double-time rates
bonuses paid solely for working overtime hours
penalty rates for overtime (as distinct from ordinary shift penalties)

However, you need to distinguish between overtime and rostered ordinary hours. If an employee works additional hours that are treated as ordinary time under their award or agreement (for example, a rostered Saturday shift at ordinary rates), those hours count as OTE and therefore as QE.

Allowances and reimbursements

Expense allowances and reimbursements are excluded from qualifying earnings if they're genuinely paid to cover work-related costs. This includes:

travel allowances expected to be spent on accommodation, meals, or transport
tool allowances, uniform allowances, and other work-related expense payments
genuine reimbursements for costs incurred (such as mileage, phone bills, or client entertainment)

By contrast, all-purpose allowances set by an industrial instrument (such as a first-aid allowance or a leading hand allowance) may count as QE if they're paid as part of ordinary earnings. You should check the ATO's list of payments that are ordinary time earnings and cross-reference your award or agreement.

Termination and arrears scenarios

Payments made on termination are generally excluded from qualifying earnings, including:

unused annual leave paid out on termination
unused long service leave paid out on termination
redundancy payments and severance pay
payments in lieu of notice

However, back pay and return-to-work amounts may count as QE if they relate to ordinary time earnings for a period when the employee was employed. You need to apply the ATO's guidance carefully to each scenario, and seek advice if you're unsure.

For more on handling termination payments, see our payroll compliance guide.

Qualifying earnings in practice: worked examples

The rules around qualifying earnings are easier to apply when you can see them in action. The two examples below show how to identify QE from a real pay run and calculate the super contribution due.

Example 1: employee with wages, overtime, and a tool allowance

Jordan works part-time in a trade business and receives the following payments in a fortnightly pay run:

Ordinary wages: $1,800 (16 hours at ordinary rate)
Overtime: $270 (2 hours at time-and-a-half)
Tool allowance: $50 (set by modern award as an all-purpose allowance)
Reimbursement for work travel: $120 (genuine expense reimbursement)

To identify QE, apply the ATO's inclusions and exclusions. Jordan's ordinary wages of $1,800 are included in QE as ordinary time earnings. The $270 overtime is excluded from QE. The $50 tool allowance is included in QE because it's an all-purpose allowance set by an industrial instrument. The $120 travel reimbursement is excluded as a genuine expense reimbursement.

Jordan's QE for this pay run: $1,850
Super contribution due (12%): $222

Example 2: employee on paid parental leave under an enterprise agreement

Priya is on paid parental leave under her enterprise agreement. In the relevant pay period, Priya receives:

Employer-funded parental leave top-up: $1,200
Government parental leave pay (passed through by employer): $900

Under Payday Super, paid parental leave sits outside ordinary time earnings and qualifying earnings . That means neither the employer-funded top-up nor the government-funded component counts as QE for the SG calculation in this pay period.

Priya's QE for this pay run: $0
Super contribution due (12%): $0

How do you calculate and report QE each pay run?

Under Payday Super, you calculate super on qualifying earnings each pay period, apply the superannuation guarantee rate of 12% of qualifying earnings (QE), and pay the contribution in line with payday so it reaches the employee's super fund within the required timeframe. You also report the QE amount and super liability via Single Touch Payroll each time you run payroll.

Follow these steps to calculate QE and SG for each pay run.

1. Identify QE for the pay period

Review all payments to each employee and classify them as included or excluded under the ATO's QE definitions. Use your payroll software's pay item mapping to automate this step. Getting this classification right is the foundation of accurate super calculations, so it's worth double-checking any pay items that sit in grey areas, such as all-purpose allowances or irregular bonuses, before you finalise the pay run.

2. Apply the SG rate to QE

Multiply each employee's QE by the current SG rate of 12% to calculate the super contribution due. For example, if an employee's QE for a fortnight is $2,000, the super contribution due is $240 (that is, $2,000 × 12%). Always confirm the current rate before processing, but from 1 July 2025 the legislated SG rate is 12%.

3. Check the maximum contributions base

The ATO sets an annual maximum super contribution base, which for the 2026 – 27 year is expected to be $250,000. . Once an employee's year-to-date QE reaches this cap, you stop calculating super on further QE for that financial year.

Your payroll system should track each employee's year-to-date QE and apply the cap automatically, but it's worth reviewing high-income employees manually each quarter to confirm the cap has been applied correctly.

4. Pay contributions on payday

Initiate the super payment at the same time as you pay wages so it's received by the super fund within seven business days. Your payroll system should generate a clearing house file or direct super fund payment to facilitate this. Setting up automated payment runs well in advance of 1 July 2026 will help you avoid the risk of late payments, which can attract penalties from the ATO.

STP reporting changes

From 1 July 2026, you must report qualifying earnings and super liability through STP Phase 2. This involves:

mapping each pay item in your payroll software to the correct STP category (for example, OTE, commissions, allowances, leave)
ensuring the QE total and super liability are calculated and reported in each pay event
testing your STP file before the go-live date to confirm it passes ATO validation

Your payroll software provider should release updates to support the new QE fields and reporting requirements. You should test these updates in a non-production environment, then train your payroll team on the new process.

How to get payroll ready for Payday Super

Preparing for Payday Super involves mapping your pay items to the new QE definitions, validating employee super fund details, aligning payment schedules with payday, and testing your setup before the go-live date. Here's a high-level checklist to guide your preparation.

Map and test pay items

Review every pay item in your payroll setup and map it to the correct QE treatment. The following categories cover the most common pay items you'll need to classify:

ordinary wages and salary (included in QE)
overtime and penalty rates (excluded from QE)
commissions and bonuses (included or excluded based on ATO guidance)
allowances (included or excluded based on award or agreement)
leave types (included or excluded based on instrument and ATO rules)

Once you've mapped your pay items, run test pay runs for a sample of employees with different pay structures (for example, hourly, salaried, commission-based, part-time). Check that the QE total and super liability are calculated correctly, and that the STP file includes the new QE fields.

If you identify any discrepancies, update your pay item mapping and retest. You should complete this testing well before 1 July 2026 to allow time for corrections and employee communication.

Confirm funds and details

Check that you have current super fund details for every employee, including:

fund name and Australian Business Number (ABN)
employee membership number
fund bank account details (if paying directly)

You should also confirm that each fund can accept contributions via your chosen payment method (for example, clearing house, direct deposit, or super fund portal). Some older funds may not support electronic payments, so you may need to arrange alternative payment methods or encourage employees to switch to a modern fund.

For more on setting up employee records, see our hiring employees checklist.

Schedule payments and controls

Align your super payment schedule with your payroll cycle. Under Payday Super, super must be initiated when you pay wages and be received by the employee's super fund within seven business days. This means:

If you pay wages weekly, super processing also becomes a weekly task.
If you pay fortnightly, it becomes fortnightly.
If you pay monthly, it becomes monthly.

You should set up automated payment runs to ensure super is paid on time, and put in place approval controls and reconciliation processes to catch any errors before funds are transferred. Set up exception alerts for bounced contributions, incorrect fund details, or employees with missing super fund information. These alerts will help you resolve issues quickly and avoid late payment penalties.

Simplify Payday Super with Xero

One of the biggest risks with Payday Super is missing a super payment because your payroll cycle and super payment schedule aren't properly aligned. Tracking qualifying earnings across different pay item types, employee arrangements, and pay frequencies adds up quickly, and a manual process makes it easy for things to slip through.

Xero's cloud payroll software is built to handle the new qualifying earnings definitions and Payday Super reporting requirements, so you can calculate super accurately, pay on time, and report via STP without manual spreadsheets or duplicate data entry. Xero is also introducing JAX, a built-in AI financial assistant, that can help you review payroll data, spot anomalies, and answer questions about qualifying earnings and Payday Super.

Ready to discover how Xero can simplify your payroll and super compliance from 1 July 2026? Get one month free.

FAQs on qualifying earnings and Payday Super

Below are common questions employers ask when setting up for qualifying earnings and Payday Super for the first time.

What is the difference between QE and OTE?

Qualifying earnings (QE) is the new base for calculating super under Payday Super, while ordinary time earnings (OTE) was the primary measure under the old quarterly system. QE includes many of the same items as OTE but also captures some payments that were excluded under OTE, and excludes some that were previously included.

Overtime payments for hours worked beyond ordinary time are generally excluded from qualifying earnings, including overtime at time-and-a-half or double-time rates and bonuses paid solely for working overtime. The exception is where additional hours are treated as ordinary time under an award or agreement, in which case those hours count as QE.

Can high-income employees opt out of SG to manage caps?

High-income employees with multiple employers may request an opt-out from super if they're approaching the annual cap. You must direct these requests to the ATO and obtain written approval before stopping contributions.

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