Understanding your payroll obligations

Managing your payroll can be a mine field and daunting for new business owners. If you speak to any seasoned payroll officer, they’ll tell you that they receive no complaints when things are going well, but it can be a very different story when mistakes are made.

Employees are generally quick to advise if their pay hasn’t been received on the due date or if the balance doesn’t reflect a recent pay rise, however there are many other aspects of employee wage entitlements which they rely on you as their employer to get right.

For example, accrual of leave entitlements, withholding of taxation and superannuation payments. The award system can also be complicated and any failure to adhere to the relevant award, which results in an employee not receiving their entitlements, can lead to punitive consequences for business owners.

Defining the payroll function

The scope of a typical payroll function is likely to include*:

*This is not an exhaustive list of all payroll duties and responsibilities and should not be used as a definitive checklist.

Adding further complication is the fact that payroll requirements vary depending on the location of the business e.g. payroll tax which varies between states, if the business is in a metropolitan or regional area and depending on the size of the workforce.

What happens if you get it wrong?

Recently, the Fair Work Act 2009 (‘the Act’) was amended (effective from 20 September 2017) to:

  • increase penalties for ‘serious contraventions’ of workplace laws
  • make it clear that employers can’t ask for ‘cashback’ from employees or prospective employees
  • increase penalties for breaches of record-keeping and pay slip obligations
  • provide that employers who don’t meet record-keeping or pay slip obligations and can’t give a reasonable excuse will need to disprove wage claims made in a court (this is also referred to as a ‘reverse onus of proof’)
  • strengthen our powers to collect evidence in investigations
  • introduce new penalties for giving us false or misleading information, or hindering or obstructing our investigations.

Fair Work can commence court proceedings for breaches of the Act and the court may make orders such as:

  • pay an employee their outstanding entitlements, plus interest
  • compensate an employee for any loss
  • pay a penalty (up to $12,600 per contravention for an individual and $63,000 per contravention for companies). Additionally, if deemed a ‘serious contravention’ (up to $126,000 per contravention for an individual and $630,000 per contravention for companies)

Note penalties for contravention of the Act can be can be levied on the company, director, human resources manager (or other manager), an accountant, a business involved in the supply change etc.

How to get it right

  • Do your research – the web is full of useful guidelines, tips and tricks. Good starting points include reviewing ATO guidelines, Australian government and Fair Work websites.
  • Purchase appropriate accounting software – Good software will assist with both accounting and payroll recording and reporting requirements. Additionally, look for those which have good reviews and have a customer support line for queries.
  • Have a designated payroll function – employ a designated payroll resource, if necessary draw on external professionals. It’s possible to outsource accounting and payroll functions and this has gained popularity in recent years with the advent of Cloud based systems.

Please note you cannot outsource your legal responsibly to comply with workplace laws and it’s your responsibility to ensure your employees are receiving their due entitlements.

  • Review and checking – things change over time and its essential you put in place regular review procedures (ideally before for each payroll payment is made) to ensure compliance is maintained.

Useful resources can be found on the ATO and Fair Work websites, including online wage payment calculators (noting online calculators are only as good as the data being inputted and you should check that the calculator itself reflects recent legislative changes).

  • Professional help – when in doubt seek professional advice from professional business and taxation accountants.