A sound payroll administration system is an integral part of an organization aiming to instil industry best practices and maintain a reputation in the market as being “an employer of choice” that people love to work for.
One of the most important aspects for an employer or an organization to know about a sound payroll administration system is to know that it is a specialised area and the payroll function’s complexity cannot be over simplified or its contribution underestimated. This is because on certain occasions some companies only have a temporary team for payroll who may necessarily not possess the required level of skills and industry knowledge to operate in that capacity. The results can be very damaging to the bottom line of the company in terms of penalties and fines as well as having the potential to tarnish its reputation.
The aim of this article is to highlight at least in brief what are the most important areas to cater to in terms of proper compliance as an employer. Demonstration of the fact that your organization has acted with reasonable and due professional care in regards to implementing & operating these important areas on employee payroll may be highly beneficial in the long run and also result in the relevant government authorities being more lenient to the company even if a mistake was made inadvertently.
In general, the below main areas fall under the larger overall function of payroll administration:
The Pay As You Go (PAYG) With holding system
The Superannuation Guarantee
The National Industrial Relations System (Fair work)
Employee Fringe Benefits and Fringe Benefits Tax (FBT)
Employee Termination Payments (Redundancy, Long service leave etc.)
Payment Summaries and Australian Taxation Office (ATO) reporting requirement
Each year, the Australian Taxation office conducts random audits on companies which they refer to as “Employer Obligations Audits”. These would typically cover the above areas and perhaps the area which is of paramount importance to the ATO in terms of compliance is The Superannuation Guarantee. There are clearly laid down guidelines for what constitutes wages and salary related payments which are liable for superannuation (referred to as Ordinary Time Earnings or OTE) as well as deadlines for payment to superannuation funds. The failure to comply carries strict penalties levied by the ATO. Company directors can be directly held liable in such cases and fined for non-compliance.
Of all the above areas listed, perhaps the one which is the most essential to comply with from a Taxation point of view is the Pay As You Go (or PAYG) withholding tax system. This system or process concerns with registering your employees with the ATO, whereby their earnings are taxed on a regular basis by your company and remitted to the tax authorities in due course.
Under the Pay As You Go (PAYG) With holding system of taxation, the business for which an employee works withholds tax from that employee’s salaries and wages and submits it directly to the ATO. To do this the ATO has provided different tax tables such as weekly, fortnightly, monthly basis as well as tax tables for individuals with government Higher Education Loan Program (HELP) debts.
All Salaries and Wages income are taxable in the financial year in which it is actually paid, regardless of it was actually earned. Perhaps the most important aspect under the PAYG with holding system is the distinction between an employer and an independent contractor.
While an employee is a part of your own business, a Contractor runs his own business and is providing a service to your business. As such if the relationship in question is that of a contractor, the employer does not need to withhold tax from the remuneration paid. It is very important to get this aspect correct at the beginning in engaging someone for work, because if you get it wrong there is always the risk of penalties and back payment of super in arrears etc. on behalf of the worker.
Hence to assist in this all important decision, the below tool is made available in the ATO website :
The below YouTube video published by the Department of Finance Western Australia, may also be of use in identifying the key factors differentiating an employee for an independent contractor. This is mainly from a payroll tax point of view.
What is also evident from some of these factors is that the distinction of employee Vs Independent contractor as per the ATO may slightly differ with that of the Department of State revenue which is in charge of payroll tax.
Therefore the relevant factors need to be applied on a case by case basis for the correct determination between an employee or an independent contractor for PAYG purposes or for Payroll tax purposes.
SOME OTHER USEFUL LINKS (PAYG Withholding system) :
Therefore as many organizations would have encountered already, it is quite a challenging aspect to set up and maintain a well-functioning internal payroll administration system which involves a substantial investment in costs and time. The on-going complexity of having to keep up with regular changes required by the ATO also adds to these challenges. That is why it is always best to seek the assistance of professional agencies having the necessary expertise in Payroll administration to give you correct guidance when it is required. Contact us at Execom Personnel today for a free chat with one of our expert consultants and find out how we can assist you to get things right from the very beginning.
Execom Personnel as the Authors and facilitators of the contents published on this information blog are not responsible for the results of any actions on the basis of information contained there, nor for any errors or omissions. Furthermore, Execom Personnel expressly disclaims all and any liability to any person or entity in respect of anything done or omitted to be done by such person or entity in reliance in whole or part of the contents of this publication. Further as laws change frequently, all readers, users and viewers are advised to undertake their own research or to seek expert professional advice to keep abreast of any developments in the topics discussed, especially the ones covering the areas of law and taxation.