From 1 July 2026, employers will need to pay employees’ super at the same time as paying their salary and wages under their ordinary pay cycle, replacing the current quarterly contribution cycle. This change, combined with the recent cash rate rise and a potential further cash rate rise, is undoubtably going to cause cash flow problems for many franchisees and small businesses.

What does this mean for franchisors?

In addition to ensuring that its own payroll and finance processes are updated to reflect the new rules, franchisors should:

1. Educate Network: Ensure that franchisees are informed of the new superannuation payment cycles and are taking steps to prepare for the resulting short term cash flow impacts. Time is critical to ensure that franchisees are adequately aware and positioned for these changes.
2. Upgrade Software: To the extent that franchisees are required to use specific software to manage and regularise employee entitlement payments, franchisors should engage with its software vendors to ensure necessary upgrades are built into the software. Where franchisees use their own software to manage payroll, franchisees should be encouraged to reach out to its software vendors to ensure necessary changes are made in readiness for 1 July 2026.
3. Audit: Update its internal audit processes to ensure that it can adequately identify non-compliance with the new superannuation payment requirements. Any non-compliance observed from an audit should be followed up with clear information regarding employer’s obligations vis-à-vis superannuation payments and clear next steps on how to rectify such non-compliance.
4. Revise Documentation: Review its franchise documentation, manuals and policies and procedures and consider whether changes are required to reflect updated changes to superannuation contribution payment cycles.

Why does this matter for franchisors?

1. Franchisee Financial Pressure: As noted above and factoring in increases to the cash rate, it is anticipated that, at least in the short term, the transition from the current quarterly contribution cycle to a requirement to pay superannuation within seven business days after payment of employees’ salaries and wages will place pressure on franchisees’ cash flow. As a result, franchisors may observe temporary difficulties among franchisees in meeting other financial obligations. Where franchisees are already experiencing cash flow constraints, franchisors ideally need to be working constructively with those franchisees to develop and implement a robust plan to manage the impact of these forthcoming changes. Regrettably, insolvency options may need to be explored for dire situations. Franchisors should be aware of, and where possible actively manage, rental obligations (particularly where the franchisor holds the lease!) and credit accounts (with all suppliers, including the franchisor or related entities) to ensure liabilities do not expose franchisors.
2. Potential Reputation Risks: In our experience, strict compliance with superannuation obligations by franchisees is frequently overlooked. In fact, in many cases, franchisees use superannuation as a ‘temporary’ cash flow source to pay other business liabilities. There is increasing public pressure on franchisors to ensure that their networks meet employment related obligations owed to employees – a trend that has been amplified by enforcement action taken by the Fair Work Ombudsman against well-known Australian franchise brands. Negative publicity arising from non-compliant franchise systems remains widespread and continues to present material reputational risks for franchisors.
3. Franchisor Liability: It is well-known that the Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 confers obligations on ‘responsible franchisor entities’ to be held liable for some instances of non-compliance with employer duties. Historically, ‘responsible franchisor entities’ were not exposed to breaches of superannuation obligations. However, since 1 January 2024, superannuation has been included in the National Employment Standards. This not only makes it easier for employees to take court action for unpaid super against its employer (franchisees) but also means franchisors can now be held responsible for non-compliance, exposing franchisors to increased penalties.

HWLE’s Franchising & Retail Team, together with our other well-integrated national specialist teams in Workplace Relations and Taxation are here to ensure you get the right advice, the first time around.

For more information about the new rules, the main changes, the opportunities, and the risks that require employers’ attention, please see our firm’s further briefing here.

For more information about a franchisor’s responsibilities in relation to contraventions of workplace laws by its franchisees, please see the Franchisor Responsibility Fact Sheet published by the Fair Work Ombudsman.

This article was written by Sean O’Donnell, Partner, and Emily Lucas, Special Counsel.