Why is Payroll Compliance such a 'dirty' word for Small Business?

There appears to be a substantial amount of background noise regarding the perceived potential costs to Small Businesses in response to Legislation introduced into Parliament to extend Single Touch Payroll (STP) reporting to Employers with 19 or fewer employees from 1 July 2019. A fundamental issue 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; 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; and last but not least, Accounting.

This discussion shouldn't be about whether or not a business believes that it needs a payroll solution because it has a small number of employees; it should be about ensuring that all Businesses, regardless of size, are fulfilling their legal obligations when paying their employees 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 employee taxation details and to allow the ATO to be proactive with businesses by assisting them in meeting 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 the government is becoming a conversation in some circles, almost akin to an impending doom that will send many small businesses to the wall, really?

So what happens now?

Currently, many Businesses, not only Small Businesses, 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 issuing of Pay Slips which is a Fair Work requirement.

• 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) report STP to the ATO, does not ensure that a business complies with Fair Work requirements. This practice is perilous; who is ensuring that any changes are being implemented within the Spreadsheet or manual system 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 administered by many Government Agencies. Software developers maintain these payroll systems with a substantial amount of work and skill, 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 Businesses know they have to pay their Accountant and Bookkeeper, but they appear to have less consideration or allow for the costs involved with payroll and, even worse, are resistant to payroll compliance. To make this situation even worse, some lobbyists appear to be assisting in propagating and facilitating non-compliance with their current actions by 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 must change.

The Fair Work Ombudsman is responsible for administrating Salary and Wages, which are covered by STP. Other monies withdrawn by sole traders from the business where Accountants assess and make quarterly adjustments are drawings and are not reported in STP. Care must be 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 suggested solutions, small businesses may barely meet their STP reporting obligations (in some cases), but unless the tools they use to obtain this data also meet 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 and is it compliant?

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 best 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 and leave Accruals, and issues Pay Slips in accordance with Fair Work requirements. Without using an appropriate payroll solution, Employers are not following best practices.

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 simultaneously, no matter what tools are being used. Anything less than this negates the purpose of "real-time" reporting and does not promptly supply complete "big data" to the Government.

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 Businesses and others (albeit some kicking and screaming) in becoming compliant. Lack of payroll compliance affects everyone who pays taxes, and Employers who ignore their obligations cost us the most.

John Shepherd and his team at the ATO are working diligently with the industry to assist in 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, the ATO must make an Assurance Framework available. This would ensure that the tools that employers have available would give them some security and that they can meet their payroll responsibilities no matter what solution is used.

While this does not solve all the existing problems, it goes a long way to changing the unacceptable payroll behaviour currently ingrained in Australian Businesses.

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