Updated: Oct 11, 2021
There appears to be a substantial amount of background noise regarding the perceived potential costs to Small Business in response to Legislation which has been introduced into Parliament to extend Single Touch Payroll (STP) reporting to Employers with 19 or fewer employees from 1 July 2019. There is a fundamental issue that is getting lost in all the noise, PAYROLL COMPLIANCE.
An Employers obligation is to ensure that they meet a payroll compliance standard and it’s the employees right to be paid correctly, the fundamental principle of processing payroll.
Payroll is primarily about the requirements of the Fair Work Ombudsman (FWO) first and foremost, for the uninitiated means; paying employees in accordance with the applicable Award/Agreement which is getting the right rate, for the right effort, at the right time: then it’s about Taxation and Superannuation: then last but not least, Accounting.
This discussion shouldn't be about whether or not a business believes that they need a payroll solution because they only have a small number of employees, it should be about the need to ensure that all Businesses, irrespective of how big or small are fulfilling their legal obligations when paying their employees in using cost-effective payroll solutions.
Single Touch Payroll was introduced by the ATO to facilitate real-time reporting, rather than a once-a-year snapshot of Employees Taxation details, and to provide the ability for the ATO to be proactive with Businesses in assisting them to meet their Payroll obligations promptly. With this change also comes the added responsibility of entering into Payroll Compliance territory which is within the realm of the Fair Work Ombudsman.
Requiring how Employers pay their staff and report to Government is turning into a conversation, within some circles, almost akin to an impending doom that is going to send many Small Businesses to the wall, REALLY?
So what happens now?
Currently many Businesses and not necessarily only Small Business, are not fulfilling their legal obligations when processing payroll.
"I don’t have to issue Pay Slips because I have an exemption!"
With over 30 years of being involved in the payroll industry I’ve heard many excuses as to why Employers are not meeting their compliance obligations with numerous examples of poor payroll practices resulting in;
Not calculating Accruals correctly, or at all.
Not calculating Superannuation correctly, or at all.
Not paying Superannuation.
Not paying the correct amount of PAYG withholding.
Ad hoc payroll when using a Spreadsheet (or any other manual method) and your Accounting (or Bookkeeper) reporting STP to the ATO does not ensure that a Business is compliant with Fair Work requirements. In fact, this practice is perilous, who is ensuring that any changes are being implemented within the Spreadsheet or manual system in order to meet Payroll Compliance.
Employees are the most valuable asset a Business has and is the only resource between the Employer and the Business being successful so the priority undeniably should be ensuring that this valuable asset is remunerated correctly!
Payroll Solutions are specifically designed, maintained and updated to stay abreast of the continuous industrial, legislative and other compliance changes that are administered by many Government Agencies. A substantial amount of work and skill is involved in the maintenance of these payroll systems by software developers and it should not be difficult to realise the enormous benefits for Employers and the significant ROI for Businesses.
Are you now seeing the big picture?
Small Business know they have to pay their Accountant and Bookkeeper but appear to have less consideration or allow for the costs involved with payroll and even worse, are resistive to payroll compliance. To make this situation even poorer, some lobbyists appear to be assisting in propagating and facilitating non-compliance with their current actions in not lobbying for the best outcomes for the members of their respective associations.
We have the opportunity with STP to slowly, but surely, engage Employers and assist in fixing the fundamental problem of the entrenched attitude towards payroll compliance and this is what must change.
The Fair Work Ombudsman is responsible for the administration of Salary and Wages which is what is covered by STP. Other monies withdrawn by sole traders from the business where Accountants assess and make adjustments quarterly are drawings and is not reported in STP. There must be care taken not to confuse Payroll transactions with Accounting transactions.
What are the primary concerns?
The messages that are currently being communicated will result in those businesses that are in a position to be digitally enabled not being inclined to do so because they will not perceive the need. By not being digitally enabled there are lots of traps and pitfalls that Employers fall into and do not heed the warnings combined now with penalties that can quickly cripple a Business.
With some of the solutions currently being suggested; Small Business may meet their STP reporting obligations (in some cases barely), but unless the tools that they are using to obtain this data also meets FWO obligations, they are not compliant and never will be. It's one thing to say, "to meet STP Compliance all you need to do is send payroll information to the ATO every pay period", but what about the source of that information, is that complaint?
If there are only a few employees and the pay is the same or similar every pay period, being "set-and-check", I fail to see any problem with an employer being able to meet their obligations using a payroll solution. The simplicity and benefits of such far outweigh any negative aspects of the process.
The way forward.
The "natural business process" is processing payroll using a solution and meeting compliance with a tool that calculates Tax correctly, assists Employers in meeting their liabilities such as Superannuation, Leave Accruals and the issuing of Pay Slips in accordance with Fair Work requirements. Without using an appropriate payroll solution, Employers are not following best practice.
Reporting using their Bookkeeper or Accountant every three months should not be an acceptable solution. When an employee's pay is processed, it should be mandatory to report at the same time no matter what tools are being used. Anything less than this negates the purpose of "real-time" reporting and is also not supplying complete "Big Data" to Government in a timely manner.
Payroll should no longer be seen as a data entry role, pays must be processed by qualified people and seen as a compliance role. Payroll is always changing, ever evolving!
It would be regrettable to squander this opportunity to assist Small Business and others (albeit some kicking and screaming) in becoming compliant. Lack of payroll compliance affects everyone who pays tax and those Employers that are ignoring their obligations cost us the most.
John Shepherd and his team at the ATO is working diligently with industry to assist in the process of providing free to low-cost payroll solutions with a common end goal, payroll compliance, resulting in a level playing field for all involved. Also to mitigate the effect of "cowboys" coming to market with ineffectual "so-called" payroll solutions, an Assurance Framework must be made available by the ATO. This would provide a level of assurance that the tools that Employers have available to them would give some security that they can meet their payroll responsibilities no matter what solution is being used.
While this is not got to solve all of the existing problems, it goes a long way to changing the unacceptable payroll behaviour that is currently ingrained in Australian Business.