An easy guide to ensure your business ATO & FWO meets payroll compliance.
Payroll is one of the most complex procedures in any business, thanks to the hundreds of awards applicable to the various aspects of payroll.
This can include different industries, enterprise or bargaining agreements, piecework agreements, contractual agreements, different classifications within the awards and agreements.
In addition are various levels of pay rates, hourly rates, salary rates, piecework rates, casual rates, and many others listed in this blog.
The Fair Work Ombudsman (FWO) is a federal body that looks after both employee and employer, and can help with recruitment and payroll, awards and agreements, leave and employee entitlements, tools and resources, terminations, unfair dismissals, best practice guides, and many other services.
The FWO and the Australian Taxation Office (ATO) have cross-referenced duties to ensure compliance.
The National Employment Standards (NES) are the minimum conditions that must be implemented in every workplace, including the minimum rate of pay.
In addition to the NES, there are other requirements.
In this blog, we are going to discuss the most common compliance requirements in this area.
Recruiting new staff can be a daunting practice. The FWO tries to make it easier on business owners by providing numerous downloadable templates adaptable for any industry.
When employers are recruiting, the ATO requires them to provide to their employees with and obtain multiple documents from them.
Here is a list of the minimum documents required:
- Job description/ statement of duties
- Copy of NES
- Superannuation Standard Choice Form
- Tax File Number (TFN) declaration form
- Employee personal details form
- Casual employment information statement
Correct Software Set-Up
Numerous accounting software companies offer payroll services, especially after the introduction of Single Touch Payroll (STP).
Some offer payroll features within the software, while others are stand-alone. The stand-alone payroll software varies in size and price, catering to all size businesses, from sole trader to large enterprises.
Whether large or small, the software will need to be set up correctly to ensure payroll compliance with ATO reporting.
It is vital to set up the following with accuracy:
The most common categories include base hourly rate, base salary, annual leave paid, personal/carers leave paid, overtime rates, bonus, commissions, allowances, and few others. You will also need to ensure that the categories are set up correctly for STP reporting.
Employee set up includes details such as:
- Full name
- Date of birth
- Employment basis (full-time, part-time, casual, contract etc)
- Classification as per award
- Hourly/salary rate
- Tax file number
- Superannuation fund details
- Leave accruals if they’re entitled to it
Correct links between the chart of accounts to ensure accurate reporting, including liability accounts and expense accounts
Many software companies will have guides on setting up payroll categories and links between the chart of accounts.
It is advisable to engage a BAS Agent to do the set-up.
Entitlements and Accruals
As per the NES, full-time, part-time and some contracted employees are entitled to annual leave, personal/carers leave, long-service leave, and leave loading.
Casual workers are not entitled to annual or personal/carers leave as they get paid a casual loading to compensate for the leave accruals. They may, however, be entitled to long-service leave.
It is advisable to read the NES with relevant awards as some awards offer more entitlements. Of course, you can find other entitlements on the FWO website.
Single Touch Payroll (STP)
STP was introduced in July 2018 to help reduce employers’ reporting burdens to government agencies.
The payroll information that needs to be reported is salaries and wages, PAYG Tax Withholding and superannuation.
Software companies have provided features that report directly to ATO. Every payroll will need to be reported to ATO on or before the employees’ pay date.
PAYG Withholding Tax
Employers have a role to play in helping employees meet their end-of-year tax liabilities. This is done by collecting part of the employees pay as tax and remit it to ATO.
Employers must register for PAYG withholding before they start recruiting.
Superannuation Contribution Guarantee
Employers have to pay their employees 10% of their ordinary time earnings into their superannuation fund of choice, at least every three months by a date specified by ATO.
There are earnings and age thresholds for the SGC, for example:
- An employee who is over 18 years old is paid $450 or more before tax in a month.
- An employee who is under 18 years and works over 30 hours per week
- NOTE: Some awards and enterprise agreements need to be consulted for additional terms and thresholds
Late lodgements and payments of the SGC can result in penalties, fees, and interest.
It is crucial that liability accounts are reconciled in the payroll software to ensure that what has been paid to the employee is the same as what is shown on the balance sheet and profit and loss reports.
Accounts to be reconciled include PAYG Payable, Superannuation Payable and the Payroll Clearing Account.
These should also be reconciled against STP reports.
ATO and the FWO both have rules and requirements regarding record keeping.
ATO requires businesses to keep records for 5 years, and FWO needs documents to be kept for 7 years. Records to be kept include timesheets, employee records, payroll records, contracts, agreements, and leave requests.
Employers are also required to provide employees with a payslip for every pay as well as income statements at the end of the financial year.
The income statements are part of the STP end of financial year finalisation, and employees can access these through their MYGOV account.
There are also specific requirements on what should show on the payslips.
Fair Work Ombudsman Audits
The FWO recommends that all business review their workplace practices regularly to make sure they’re complying with the Fair Work Act 2009 and the Fair Work Regulations 2009. This is called self-audit.
Like the ATO, the FWO can also run workplace audits to ensure employers are compliant with the act and regulations. Penalties and fees may result from audits performed if the business concerned is found to be non-compliant.
In summary, not meeting payroll compliance can be costly and, in some cases, result in prosecution.
If you’re unsure about your payoll compliance, you can either contact the ATO and the FWO to discuss it with them or seek professional advice to ensure that your systems and processes meet rules and regulations.
If you require help with ensuring your entity is compliant, please email to book a time to discuss your concerns and processes.