Top tips for best practice payroll compliance

Payroll is a process that, done well, should be invisible to the rest of the business. However, it remains one of the biggest but preventable areas of risk for many businesses.

With the first wave of the ATO’s mandatory Single Touch Payroll Reporting (STPR) only months away, now is the opportunity to reflect on your business’ payroll environment and consider moving closer towards best practice before it is too late.

What are the most common mistakes businesses make with their payroll?

We asked our experts at BDO in Australia what the recurring pitfalls are and this was their response:

  • employees unintentionally paid below Award
  • incorrect withholding of PAYG creating problems for employees at tax time
  • poorly managed (sometimes unlawful) salary sacrifice arrangements
  • incorrect allocation of payroll related transactions in the accounting system
  • businesses that struggle to meet the cashflow obligations of PAYG withholding tax and superannuation
  • lack of transparency of accrued leave (especially long service leave)
  • employee entitlements not correctly recognised in the accounting system.

Staff are at the heart of your business. A well-managed payroll function can preserve the organisational culture, and protect against the ill effects of payroll compliance risk – such as lost productivity, cashflow pressures, ATO penalties and even industrial relations action against your business.

How to avoid the pitfalls

Whether you have five employees, 50, or 500, these top tips can apply to businesses of all sizes.

1.Modernise your systems: Ensure your software is future-fit by adopting a cloud-based payroll system that integrates with your accounting system. This eliminates the need to manually enter data multiple times and reduces the risk of inconsistencies between systems. This will also ensure you’re ready for the looming STPR deadlines.

2.User experience is key: These days, everything is mobile. So why shouldn’t payroll be the same? If a task is easy, it’s more likely to get done – fast. Adopting modern systems harnessing mobile, self-service interfaces for staff to manage leave requests, changes to personal details, accessing payslips, submitting timesheets and viewing rosters, makes it easy for staff to follow the processes necessary for accuracy.

3.Be ahead of STPR – lodge and pay the same time as payroll: Why wait until the end of the month or quarter to pay your PAYG withholding tax and superannuation liabilities? By preparing your cashflow budget where employee liabilities are paid in full every pay run, you not only have a better perspective of your business’ cash position, but you reduce the risk of penalties, interest, and upset employees when the payment deadlines are missed – not to mention, it’s two less things to diarise and think about!

4.Reconcile key accounts every pay run: Often, checking on the payroll-related accounts in the accounting software is a month-end or quarter end task. To best protect against payroll compliance risk and excessive time spent correcting the accounting records, reconcile key accounts like PAYG withholding payable, superannuation payable and leave liabilities every pay run.

5.Register for alerts for legislation changes: Payroll related legislation, especially Awards, can change frequently. Keeping up to date with these is critical to ensure staff are paid correctly and payroll compliance risk is minimised. Key legislation and regulations include (but are not limited to):

  • Fair Work Act 2009 and amendments
  • National Employment Standards
  • Industry and Occupation Awards
  • Superannuation Guarantee Rulings
  • Long service leave (state based)
  • Payroll tax (state based)
  • Workers compensation legislation (state based)
  • Australian Taxation Office updates.

6.Outsource and focus on what you need to do: Compliance is tricky. By outsourcing to experts – those that specialise in payroll – you can focus on the needs of your business and enjoy the peace of mind that your compliance risk is recognised and minimised with:

  • Award interpretation guidance.
  • Access to knowledge that is always up to date with legislation and best practice.
  • Access to a dedicated team in payroll, without the limitations of geographical location.
  • Continuity of service all year round – no more managing leave and training new staff.
  • No need to hire more staff as your business grows – the service scales up with your business needs.
  • Adopting online systems ensures that all payroll-related processes, including outsourcing, are seamless and not bound by geographic limitations.

In conclusion, the introduction of Single Touch Payroll Reporting is the Australian Taxation Office’s first whole of economy big data initiative to collect real-time transaction and compliance information, creating significant changes for how businesses across the country report to and engage with regulators so there is no better time than now to get your payroll in order.

Helen Argiris, Outsourced Payroll Services Partner and National Chairman, BDO Australia

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