Payroll compliance is a very serious matter!
Whether you are a large corporation or a small family business, getting payroll right should be a priority. With a constant flow of companies being publicly prosecuted for underpaying employees, payroll compliance in Australia is under the spotlight.
Navigating payroll laws, correctly interpreting the Modern Awards and National Employment Standards (NES) and keeping up with constant changes to legislation can be a challenge.
Often small and medium sized businesses pass off the important payroll function to their Finance Officer or Administration/Practice Manager, who are not necessarily an expert in all facets of the field. They may not recognise that there are two main specialist requirements associated with payroll that often throws up the question, “Is payroll a Finance or HR function?
The answer is, it is both. The knowledge and skills of a Finance specialist to successfully manage the payroll are:
Working with numbers
Interpreting taxation laws and legislation and keeping up with changes and updates
Company superannuation
Managing the chart of accounts
Migrating the pay journal to the accounting platform
Financial Reporting
The knowledge and skills of a Human Resources Specialist to successfully manage the payroll are:
Understanding company policy around paying staff
Interpreting modern awards, entitlements and other employee related legislation such as terminations of employment
Keeping abreast of legislation changes and updates
Best practice concerning staff remuneration
Dealing with privacy laws and confidentiality
Dealing with equality regarding pay
It is therefore a function that needs more than one specialist involved to achieve 100% payroll compliance.
In this article we recommend 3 important ingredients to achieving payroll compliance.
1. Select the right Payroll Software
It’s common for small to medium sized businesses to run their payroll through accounting packages such as MYOB or Xero. Unfortunately, the payroll features in most accounting packages are extremely limited and unsupported. They lack manager-level access to approve and create timesheets and leave requests, advanced payroll reporting, award interpretation, custom rule interpretation, employee scheduling and much more. They’re also labour intensive and require resources who are spot on in interpreting the law and legislation when it comes to paying your people.
Many medium and large organisations tend to deploy software developed decades ago. These platforms are difficult to customise, lack automation, are a drain on internal servers and resources, are costly to implement and are limited in their ability to integrate with other platforms. Unless your payroll system is already integrated with your accounting system, you will either need to pay for integration, manipulate CSV files or manually enter your payroll data for your accounts.
EVOLVING SYSTEMS
Payroll software is constantly evolving - increasing the level of automation for repeatable rule-driven tasks and safeguarding your compliance obligations. These software advances provide greater efficiency, speed and integration, so it’s imperative to use the best tools in order to keep up.
Access to the best platform could be the difference between a business surviving or perishing, particularly in high-growth situations where scalability is important.
Available today are cloud-based payroll platforms that suit any sized business. They’re affordable and scalable and offer automation, built-in compliance and Application Programming Interface (API), which means they interface with other systems such as Xero, MYOB, QuickBooks and more.
2. Know your obligations around record keeping
Small and medium sized businesses struggle keeping compliant records due to having a lack of systems and processes in place, and no dedicated resource to manage it.
However, the Fair Work Act 2009 has strict rules and regulations around record keeping, including what details need to be displayed on payslips.
Some examples of what records need to be kept in a private and secure location are:
General
employer’s and employee’s name
employer’s ABN (if any)
employee’s commencement date
whether the employee is full-time, part time, or casual
whether the employee is permanent or temporary.
Pay
pay rate paid to the employee
gross and net amounts paid
any deductions from the gross amount
details of any incentive-based payment, bonus, loading, penalty rate, or other monetary allowance or separately identifiable entitlement paid.
Hours of work
any penalty rates or loadings paid to employees for overtime hours worked, including:
the number of overtime hours worked by an employee during the day
when the employee started and finished the overtime hours
the hours an employee works if the employee is a casual or irregular part-time employee who is paid based on time worked
a copy of the written agreement if an employer and employee have agreed to an averaging of the employee’s work hours.
Leave
any leave taken
how much leave an employee has.
If an employee is able to cash out annual leave, the employer has to keep:
a copy of the agreement to cash out the amount of leave
a record of how much was paid, the amount of leave cashed out and when the payment was made.
Under an award, if an employer agrees for an employee to take annual leave in advance, the employer has to keep a copy of the agreement. The agreement has to say the amount of leave taken and the day the leave starts.
Superannuation contributions
amount paid
pay period
date(s) paid
name of super fund
reason the employer paid into the fund (eg a record of the employee’s super fund choice and the date they made that choice).
If employers pay a defined benefit interest into a defined benefit fund, employers don’t have to include these contributions in the record.
Individual flexibility agreements
If an employer and employee agree to an individual flexibility agreement under an award or registered agreement, a record must include both:
a copy of the written agreement
a copy of any notice or agreement to terminate the flexibility agreement.
Guarantee of annual earnings
the guarantee
the date the guarantee was cancelled (where applicable).
Ending employment
how the employment was terminated e.g.by agreement, summarily, or in some other way (specifying details)
if notice was provided and, if so, how much
the name of the person who terminated the employment.
Transfer of business
Where there has been a transfer of business, the old employer has to give the new employer records of any transferring employee. The new employer also has to ask for employment records from the old employer for any transferring employee who becomes an employee within three months of the sale.
Time and wage record must be kept for 7 years. If records aren't kept or are incorrect, Fair Work Inspectors can give employers a fine, called an infringement notice.
If you are feeling a little overwhelmed at the moment, don’t be! There are affordable payroll and HR platforms available, designed to help small and medium sized businesses store all their employee records in a central location, as well as collect, issue and maintain compliant records.
3. Be selective with who you have set up and manage your payroll
You can have the best payroll platform in place; however, you still need expertise in setting it up and managing.
Many non-compliance issues are due to incorrect set up in payroll and in some cases the errors go back for years.
3 Common areas for errors include:
1) Pay codes:
Pay codes determine entitlements, tax, super, and in most cases payroll tax liability, and Single Touch Payroll (STP) reporting. Common areas for errors include when to use categories as ordinary hours, associated accruals or Superannuation Guarantee Contributions (SGC) to those categories and when something is considered an allowance.
Similarly, whether allowances are subject to SCG and more recently STP reporting rules are often incorrectly setup.
2) Deductions/back payments:
These have a direct impact on employee’s taxable earnings, Single Touch Payroll (STP) reporting and tax amount. As we know deductions can be before or after tax and there are specific rules surrounding the treatment of deductions/back payments that should not be ignored.
3) Leave code/category:
They determine the accrual rate and entitlement period. The leave code/category should at least meet the national minimum standards or state/territory minimum for Long Service Leave (LSL). Correctly determining whether a leave category is paid or unpaid is a common oversight.
As you can see there is a lot that can go wrong with the setup. If non-compliant, it could lead to inaccurate leave accruals, superannuation errors, under/overtaxing employees, not meeting your company payroll tax or reporting obligations, among others.
Rectifying these errors will cost companies money, resources and reputation.
Essential HR in partnership with Employment Innovations are leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium-sized employer needs – including workplace advice, legal services, outsourcing payroll, payroll software, human resource management & HR software.