Payroll services are becoming increasingly popular for smaller organisations, as business leaders recognise that employing a dedicated payroll officer is inefficient and that they lack the in-depth expertise a payroll service can guarantee. However, in the wake of the recent alleged fraud involving payroll service provider Plutus, now is a good time for businesses to assess their payroll provider arrangements and review associated risks.
Businesses have an obligation to ensure the tax withheld from employees’ wages is remitted to the Australian Taxation Office (ATO). Under some arrangements, payroll providers will be paid the gross wages by the employer and then arrange payment of the net wages to the employee and the withholding tax to the ATO.
If you use an outsourced payroll service, you should be aware that paying these amounts to the service provider does not meet your obligations to the ATO. If the service provider does not make the payments to the ATO as required, it will be the employer who the ATO will target for payment, not the service provider. An employer could potentially have to pay the amount again to the ATO even though they have already paid the amount to the service provider.
It’s not just fraud that could be the risk – financial failure of the service provider would also trigger big complications, particularly if the ATO hasn’t received up-to-date withholding tax remittances.
The recent BDO Global Risk Landscape 2017 survey, gathered insights from more than 500 c-suite and senior level experts across 55 countries on their perception of risk. The report identified reputational and financial risks as among the greatest challenges that are most likely to test them over the coming years.
The questions small businesses should be asking their payroll provider are:
- Are you registered with the Tax Practitioners’ Board as a tax agent or BAS agent?
- What arrangements do you have in place to hold our funds until they are remitted to the ATO? If this is not a trust account, why not?
- Are your trust accounts audited, or are your financial statements audited each year? If so, please provide a copy.
- Can we renegotiate our arrangements so that we retain the cash required to make payments and are simply provided with a payment file to process each pay-period?
Helen Argiris, Chairman, BDO
