How to get your payroll right
A series of high-profile examples of businesses underpaying their employees has brought the need to get payroll right into sharp focus.
Complex award and enterprise agreements can complicate payroll obligations, in terms of both regular salary and wages and the ongoing need to pay employee superannuation. On top of that, from 1 March 2020, changes commence for annualised wage arrangements that will increase the compliance burden on some businesses.
The new rules impact on full time employees paid an annual wage under one of 16 Awards. Under the rules, an employee’s annual wage can’t be less than what they would’ve been paid over the year if they were paid all of their award entitlements for their work. If you pay your team above the award entitlements, then you can continue to pay an annualised salary without using the annual wage arrangements. If you have team members on a minimum wage however, there are additional obligations.
Fair Work states that employers need to record the annual wage arrangement in writing and give their employees a copy. This has to include:
- The annual wage that will be paid
- Which award entitlements are included in the annual wage
- How the annual wage has been calculated, including any assumptions used in the calculation
- The maximum (or ‘outer limit’) number of penalty hours and overtime hours the employee can work in a pay period or roster cycle without extra payment.
The employer must also record the employee’s:
- starting and finishing times
- unpaid breaks taken.
- Employees have to acknowledge the record of hours they’ve worked is correct by signing in writing or electronically at the end of every pay period or roster cycle. This record is used for annual reconciliations.
The introduction of single touch payroll (STP), has standardised the payroll process. Virtually all businesses will be on STP by July this year with closely held businesses moving to STP (closely held payees receive payments that are not at arm’s length, generally family members of a family business, directors or shareholders of a company, or beneficiaries of a trust).
For businesses that employ backpackers, there is a separate registration scheme that needs to be followed.
There are two key components to getting payroll right:
- Get the award right and ensure you are paying your team the correct rates including any overtime, penalties and allowances.
- Ensure you are calculating super guarantee correctly particularly for team members with salary sacrifice arrangements in place. The rules for calculating SG change on 1 July 2020 to ensure that an employee’s salary sacrifice contributions cannot be used to reduce the amount of SG paid by the employer.
Super guarantee amnesty: Now is the time to get payroll right
The superannuation guarantee (SG) amnesty provides employers with a one-off opportunity to “self-correct.” Now is the time to ensure that your payroll is correct and there are no hidden SG issues looming.
The amnesty applies from 24 May 2018 (the date of the original announcement) until 6 months after the legislation receives Royal Assent. Employers will have this period to voluntarily disclose underpaid or unpaid SG payment to the Commissioner of Taxation.
The amnesty applies to historical underpaid or unpaid SG for any period up to the March 2018 quarter.
To qualify for the amnesty, employers must disclose the outstanding SG to the Tax Commissioner. You either pay the full amount owing, or if the business cannot pay the full amount, enter into a payment plan with the ATO. If you agree to a payment plan and do not meet the payments, the amnesty will no longer apply. The amnesty only applies to “voluntary” disclosures.
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With the borders between the State and Territories all but open and 2021 in sight, there is a hunger for a return to ‘normal’. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to ‘get on with things’; sentiment reached its highest level since November 2013 and Christmas spending is expected to be consistent with previous years.
However, the Reserve Bank of Australia cautions that the recovery will be uneven and drawn out and GDP is not expected to return to pre-pandemic levels until the end of 2021. The risks are not limited to the pandemic but Australia’s geopolitical relationships, notably with our largest trading partner, China.
Here’s our key risks and opportunities as we head into 2021 …
The ATO has extended the JobKeeper. 31 December 2020 is the last day you can apply to access your superannuation early under the COVID-19 early access measures. Read more here …
Over $34.4bn has been released from Australian Superannuation Funds under the COVID-19 early release scheme, the Australian Prudential Regulation Authority revealed. The figures, which do not include self-managed super funds, show the deep impact of the scheme on superannuation balances. 3.3 million initial applications and 1.3 million subsequent applications were received by funds.
At the recent Senate Estimates hearing, Jeremy Hirschhorn, the ATO’s Second Commissioner, stated that $120 million in JobKeeper payments had been clawed back from those either deliberately seeking to rort the system or who had made reckless mistakes. Read more ….
If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits.
The material and contents provided in this publication are informative in nature only.
It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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