Founder pay, unpaid super, and the ATO: what every startup operator needs to know.
Startup cash is always tight. But not all financial obligations are created equal. Some will wait and some absolutely will not.
There is a version of startup finance that gets talked about a lot — the pitch deck, the runway, the burn rate. And there is another version that mostly gets discussed after things have gone wrong: the ATO debt, the unpaid super, the letter that turns a company problem into a personal one. I spent a significant chunk of my time as an operations executive living in that second world, often. This is what I learned.
Founder pay is flexible. Super and PAYG are not.
When a company is cash-constrained, founders often defer their own salaries. That is a legitimate and common arrangement. Founders agree to reduce or defer pay, document it properly, and treat it as a creditor claim or convert it to equity later. It is uncomfortable, but it is a choice founders can make about their own remuneration.
Where this thinking goes wrong is when it bleeds into other obligations. Super and PAYG withholding are not yours to defer. They belong to your employees — super is their retirement money, PAYG is their income tax withheld on behalf of the government. When a company collects those amounts and does not pass them on, it is not deferring a payment. It is holding money that was never the company’s to hold.
The ATO treats these differently, and so does the law. Miss a supplier invoice and they send a reminder. Miss your superannuation guarantee obligations and the SGC (Superannuation Guarantee Charge) kicks in. Avoiding lodgement makes it even worse, fast-tracking director liability – the ATO’s enforcement mechanisms are not built around the company’s financial circumstances. They are built around deadlines. Miss your PAYG withholding obligations and you are on a short road to a Director Penalty Notice.
Payment plans sound like a solution. They are a treadmill.
When a startup falls behind on its BAS lodgements or cannot clear an ATO debt, the typical response is to call the ATO and negotiate a payment plan. I have done this many times and it works. The ATO is surprisingly reasonable when the debt is small and the payment plans few.
Here is the thing about ATO payment plans that people do not fully appreciate until they are managing one: they require you to simultaneously service the existing debt and stay current on every new obligation. The moment you lodge a new BAS quarter, the outstanding balance grows. The plan you just negotiated may no longer be sufficient. So you renegotiate. And the cycle continues.
In practice, managing an ATO payment plan in a cash-poor startup is a full-time operational task. You are tracking due dates across multiple entities if you have a group structure, lodging on time even when you cannot pay immediately, making sure signatories are in place, and keeping the ATO informed when circumstances change. If any of that slips — even a single missed instalment — the ATO can end the plan and pursue the full balance immediately. I have set up automated reminders for people who I probably should not have needed to remind. That is just how it goes sometimes.
I have seen companies treat the existence of a payment plan as proof that the ATO problem is managed. It is not. It is proof that the ATO is watching closely and has agreed, for now, to be patient.
The personal liability trap directors do not expect.
Most first-time directors in startup companies do not fully understand Director Penalty Notices until they receive one. A DPN is the mechanism by which the ATO reaches past the company and holds individual directors personally liable for unpaid PAYG withholding and unpaid superannuation guarantee charge.
There are two types. A standard DPN gives you 21 days to act — pay the debt, appoint an administrator, or commence liquidation. A lockdown DPN is worse: it arrives when the relevant obligations were not reported to the ATO within three months of their due date, and it removes your ability to escape personal liability by placing the company into administration. At that point, the liability is yours regardless of what happens to the company.
This is not an edge case or a penalty reserved for egregious misconduct. Directors of struggling companies — including those who have been actively trying to manage their ATO obligations — can find themselves personally liable because the reporting deadlines slipped, or because they did not have the authority or access needed to ensure lodgements were made on time. I remember reading through the rules around lockdown DPNs for the first time and having to go back and read them again, because the personal exposure felt too large to be real. It is real.
The distinction between active and passive involvement matters here, but it is not a simple get-out. If you are on the board, you carry the exposure. That is the design of the system.
What good operational management of these obligations actually looks like.
Based on direct experience, here is what I think every startup operator and director should have in place:
Treat super and PAYG as first-tier obligations, not last resort. Pay employees’ entitlements before discretionary spend. Document when you cannot and communicate that clearly to the board.
Lodge on time even when you cannot pay. The lockdown DPN risk comes from late lodgement, not just late payment. A lodged BAS with an outstanding balance is a much better position than an unlodged one.
Ensure multiple signatories have access to ATO portals and company banking. Single points of failure are a real operational risk. If the one person managing ATO relationships goes on leave or exits the company, lodgements and payments need to continue.
Brief your board on the ATO position regularly — not just the total number, but the plan, the due dates, and the risk if the plan fails. Directors who are not kept informed cannot protect themselves or the company.
A skilled bookkeeper with a direct line to the ATO is like having a ringer on your team. Seriously, do not underestimate their value. A good bookkeeper knows the ATO’s systems, speaks their language, and can often resolve issues faster than any lawyer or accountant. If you do not have one, get one.
If you are a director and you do not have visibility over whether these obligations are being met, get it. Passivity is not a defence, it is a liability.
The bigger picture.
Startups routinely underinvest in operational infrastructure (I wrote about this in a previous piece). The ATO relationship is one area where that underinvestment has a particularly sharp edge. It is not just about the company’s survival. It is about the personal financial exposure of every person who sits on the board.
The founders and operators I have worked with who understood this ran tighter processes, had cleaner records, and, when things did go wrong, were in a far better position to demonstrate that they had acted responsibly. That documentation matters. The ATO has discretion. Courts have discretion. How you can show you managed these obligations, even in hard circumstances, is often the difference between a resolved problem and a personal one.
It is also worth noting that in the 2024–25 financial year, the ATO issued more than 84,000 Director Penalty Notices – up from 26,702 the prior year. That is a triple the amount in twelve months. That is not a warning shot. That is an enforcement posture. And from 1 July 2026, employers will be required to pay their employees’ superannuation at the same time as salary and wages, removing what little float existed under the old quarterly system. From an Ops perspective, this is a massive shift in cash flow management. If you haven’t already, begin simulating this cash flow impact now or transitioning to monthly super payments early to remove the quarterly shock to the bank balance. The margin for error is not only narrowing, it has already narrowed.
If you are working through ATO obligations in a company under financial pressure, speak to an accountant and a lawyer who specialises in tax or insolvency. This piece reflects my own operational experience — it is not legal or financial advice.
Lessons learned
Super and PAYG are not yours to defer. Founders can choose to delay their own pay. They cannot choose to delay their employees’ entitlements or the government’s money.
An ATO payment plan is not the end of the problem. It is a stay of execution with conditions. The moment those conditions slip, the full debt is back in play.
Director liability does not require intent. If the lodgements did not happen, and you were on the board, the exposure is yours regardless of whether you knew.
Documentation is your best defence. The ability to show you raised concerns, escalated issues, and took reasonable steps matters enormously when things go wrong.
Key takeaways for founders and CEOs
Know your ATO position at all times. Not the rough estimate — the actual balance, the lodgement status, and the due dates. If your bookkeeper or accountant cannot tell you in five minutes, that is the first thing to fix.
If you are running lean and cash is tight, pay super first. It is the obligation that bites hardest and fastest. Other creditors will often negotiate. The ATO has less flexibility than you think, and less patience than they had in previous years.
Invest in a good bookkeeper before you think you need one. Once you are managing a payment plan with a growing balance and a board that does not fully understand what is happening, it is already late.
Key takeaways for directors and board members
Ask about the ATO position at every board meeting. It is not a management problem — it is a director liability problem. If management are not reporting on it, require that they do.
Understand the difference between a standard DPN and a lockdown DPN. The lockdown notice removes your ability to escape personal liability by placing the company into administration. Once it arrives, your options are severely limited.
If you do not have access to verify that lodgements and payments are being made, that is a governance issue. Raise it formally. Document that you raised it. This is not bureaucratic box-ticking — it is how directors protect themselves.
Frequently asked questions
What is the difference between a standard Director Penalty Notice and a lockdown DPN? A standard DPN gives a director 21 days to act — pay the debt, appoint an administrator, or commence liquidation — and personal liability can be avoided if you move quickly. A lockdown DPN removes that escape route entirely: it issues when obligations were not reported to the ATO within three months of the due date, meaning the liability is personal and permanent regardless of what happens to the company.
Can a startup director be personally liable for unpaid superannuation? Yes. Under the Director Penalty Notice regime, the ATO can hold individual directors personally liable for unpaid superannuation guarantee charge — not just the company. If the relevant obligations were not lodged on time, a lockdown DPN can issue, removing the ability to escape liability even by placing the company into administration.
When does payday super start in Australia? From 1 July 2026, employers will be required to pay employees’ superannuation at the same time as their salary and wages, rather than quarterly. This is a significant cash flow shift for small businesses — if you are currently relying on the quarterly cycle as a cash buffer, now is the time to model the impact and adjust.
Sources
ATO issued more than 84,000 DPNs in FY2024–25 — Deputy Commissioner Anna Longley, speech to The Tax Institute Tax Summit, 5 September 2025: https://www.ato.gov.au/media-centre/deputy-commissioner-anna-longleys-speech-to-the-tax-institute-tax-summit
DPNs tripled from 26,702 in FY2023–24 — David Adams, SmartCompany, 9 September 2025: https://www.smartcompany.com.au/tax/director-penalty-notice-ato-increase-small-business-compliance/
I'm John Chung, I've spent over 15 years building and running startups and scale-ups as a founder, operator, and non-executive director (GAICD). I write about the gap between how companies are supposed to operate and how they actually operate.
All content is produced by me, reflecting my own experience and judgement. Generative AI tools were used for editorial support, in this case Claude specifically.