Ensuring compliance with payroll regulations is not just a legal requirement but also a reflection of your commitment to ethical business practices. With the new financial year approaching, it is an ideal time to review your current practices and ensure you are up-to-date with any changes to payroll regulations.
Australian Payroll Compliance: The Legal Framework
Before going into the best practices, let’s look at the legal framework of payroll compliance.
The Fairwork Act
The Fairwork Act (FWA) sets the framework for fair and productive workplace relations. It extends to both employees and employers.
It established the National Employment Standards (NES), which set out minimum employment entitlements, including maximum weekly hours, leave entitlements, and redundancy pay.
The FWA also contains provisions for Modern Awards, which outlines the minimum pay rates and employment conditions for specific industries or occupations. It covers aspects like working hours, leave entitlements, and other basic rights. Modern Awards provide a safety net beyond NES.
The Fair Work Act 2009 also mandates that employers keep detailed employee records for seven years, including pay, hours worked, leave, superannuation contributions, and terminations.
The legislation also establishes the Fair Work Commission as an independent employment tribunal. The commission handles employment disputes, unfair dismissals, and industrial actions.
The Fair Work Ombudsman, responsible for enforcing and educating employers and employees about their rights and obligations, was created under the Fair Work Act (FWA).
A New Tax System Act 1999 (Pays As You Go)
The PAYG system simplifies tax collection and ensures timely payment of income tax, Medicare levy, and other related liabilities. This Act requires employers to withhold tax from employees’ wages and remit it to the Australian Tax Office (ATO). Employers must report PAYG (Pay As You Go) for each payroll, which contributes to the Employee Income Statement at the end of the financial year, previously known as payment summaries or group certificates.
The Superannuation Guarantee Act
Superannuation is a retirement benefit in Australia that provides income to retired individuals. As an employer, you are responsible for paying superannuation contributions on behalf of your eligible employees in addition to their wages and salaries.
The Superannuation Guarantee (SG) Act outlines the rules and obligations employers must comply with when contributing to their employees’ superannuation funds. This includes who is entitled to SG and the penalties for employers who fail to meet their obligations.
Budget Savings (Omnibus) Act 2016 & Treasury Laws Amendment (Single Touch Payroll)
Single-touch payroll (STP) was introduced on September 16th, 2016, as part of the Budget Savings (Omnibus) Act 2016. Starting July 1st, 2018, organisations with 20 or more employees must comply with STP reporting standards.
STP was later expanded to include all businesses in Australia under the Treasury Laws Amendment (2018 Measures No. 4) Act 2019.
Employers must report employee payroll data to the ATO, including salaries, wages, PAYG withholding, and superannuation, for every pay cycle through STP-enabled software. This simplifies reporting, increases accuracy, and ensures compliance.
Key Legislative Changes for 2024
Several significant changes will impact payroll compliance in this and the upcoming financial year.
Superannuation Guarantee Increase
When it was introduced in 1992, the Superannuation Guarantee was initially set at only 3%. Since then, it has been gradually increasing.
Beginning on 1 July 2024, the minimum employer contribution to superannuation will be 11.5%. This means employers must adjust their payroll systems to accommodate this change.
PAYG Tax Table Updates
The Australian Tax Office (ATO) regularly updates the PAYG tax tables. Employers must stay informed about the latest tax rates and thresholds to ensure correct tax withholding.
Minimum Wage Adjustment
Following the Fair Work Commission’s review, employers must implement any changes to the minimum wage to comply with the legal requirements for their industry and classification.
Fairwork Act Amendments (Closing Loopholes)
Two sets of amendments have been made to the Fair Work Act in Australia as part of the government’s Closing Loopholes initiative. These amendments are:
- The Fair Work Legislation Amendment (Closing Loopholes) Act 2023, which was granted Royal Assent on December 14, 2023.
- The Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024, which was granted Royal Assent on February 26, 2024.
The amendments will take effect at different times from 15 December 2023 to August 2025.
These amendments introduced changes in relation to the following:
Rules for labour hire worker
Labour hire employees can now apply to the Fair Work Commission for a regulated labour hire arrangement order. If the order is granted, the employees will have a protected pay rate no less than what they would receive if they worked directly for a host employer.
Criminalising intentional wage underpayments
Employers’ intentional underpayment of wages will become a criminal offence by January 1, 2025.
Casual Employment Definition
According to the revised Fair Work Act, an employee is considered a casual worker if they fulfil the following conditions:
- The employment relationship doesn’t involve a definite or ongoing commitment, based on several factors such as the true nature, practical reality, and actual substance of the work.
- The employee receives casual loading or a specific pay rate for casual workers.
These changes will apply starting 26 August 2024.
Independent Contractors Definition
The Fair Work Act in Australia introduces a new way to determine whether someone is an employee or an independent contractor. This distinction is crucial because it determines the rights and obligations that apply.
The focus is no longer solely on what the employment contract states. The actual day-to-day working relationship is also taken into consideration. This involves examining the true nature of the work beyond what is written on paper.
With this new approach, some working relationships may be classified differently than before. For instance, an individual previously classified as an independent contractor may now be considered an employee. Consequently, this could impact their rights and responsibilities.
Exceptions: This new definition doesn’t apply to everyone. For instance, it won’t affect those whose employment status is only covered by the national laws due to a state agreement with the Commonwealth. Also, it won’t change how ’employee’ and ’employer’ are defined under other laws, such as those for taxes, superannuation, and workers’ compensation.
Certain workers earning above the high-income threshold may opt out of the new definition through a notification process. The threshold hasn’t been defined as of this writing.
These changes will apply starting on 26 August 2024 or an earlier date set by the Australian Government.
Sham Contracting
Sham contracting is when a business incorrectly tells someone that they are an independent contractor when they are actually an employee. This is usually done to avoid paying employee benefits and taxes. Businesses caught doing this can face penalties.
In a court case, a defence is an explanation or reason given to argue against a claim. Previously, in cases of sham contracting, businesses could defend themselves by claiming they were simply careless (known as the ‘recklessness’ test) about misclassification.
Now, the rules have changed to a ‘reasonableness’ test. This means that to defend against a claim of sham contracting, a business must show that it was reasonable for them to believe that the worker was truly an independent contractor at the time they made that decision. This new test requires businesses to be more careful and justified in their decision-making about how they classify workers.
These changes started on 27 February 2024.
Increased Civil penalties for wage underpayments and serious contraventions
The new laws increase the maximum fines for businesses when they pay their employees less than they are supposed to. The said changes will apply by 1 January 2025.
The amendments also increase penalties for serious contraventions and redefine what constitutes serious contraventions. The said changes have been in effect since 27 February 2024.
Best Practices for Payroll Compliance
To maintain compliance, employers should consider the following best practices for establishing clear and efficient payroll procedures.
Stay Compliant with Tax Laws and Regulations
Tax laws and employment regulations are constantly evolving. Ensure your payroll system complies with the latest laws to avoid penalties and legal issues.
Comply with industry-specific regulations for minimum pay rates and conditions and correct employee classification as outlined in the National Employment Standards, Modern Awards or enterprise agreements applicable to your employees.
Ensure Accurate Wage Calculations
Accurate wage calculations rely on precise attendance records. Use robust timekeeping systems to track employee working hours and breaks.
Ensure timely and accurate tax deductions and superannuation contributions based on their individual circumstances.
Maintain Accurate Records
Maintain meticulous records of all payroll transactions, including hours worked, pay rates, and deductions for tax, superannuation, and other statutory contributions. This will ensure transparency and compliance with ATO guidelines.
Also, keep records of all employment agreements that contain important details such as terms and conditions of employment, pay rates, and any other relevant agreements. This will help ensure compliance with legal requirements.
Ensure Timely Tax Reporting and Payment
Adhere to the ATO’s tax reporting and payment deadlines to avoid penalties and interest charges.
Continuous Professional Development
Stay informed about changes in payroll legislation and best practices through ongoing education and training.
Prioritise Data Protection and Security
Implement robust security measures and regularly update them to protect sensitive employee information.
Consider Outsourcing Payroll to Experts
Outsourcing payroll to a team of experts is a smart decision for any business owner who wants to stay updated on the constantly changing compliance regulations.
Outsourcing ensures that your payroll is always accurate and compliant, which helps you avoid costly penalties and legal issues. You can also free up internal resources and focus on other critical aspects of your business.
Moreover, outsourcing payroll to a team of experts can provide additional benefits, such as access to the latest payroll technology, expert advice, and customised solutions that can help you optimise your processes.
End of the Financial Year Checklist for Businesses
As the end of the financial year approaches, you must start preparing for the various tasks you must complete before the deadline. Whether you’re a small business owner or part of a larger organisation, you should know the critical tasks and obligations to ensure compliance with tax and accounting regulations.
Creating a checklist of things to do can be incredibly helpful in staying organised and on top of things. So, let’s take a look at some of the essential items that should be on your end-of-financial-year checklist.
- Payroll Reconciliation: Reconcile payroll records with your financial statements. Verify that the total payroll expenses match your financial reports.
- Superannuation Contributions: Confirm that superannuation contributions have been made correctly for all eligible employees and lodge the necessary superannuation reports.
- Finalise STP Reporting: Complete your final STP reporting for the financial year. Ensure all employee data is accurately reported to the Australian Taxation Office (ATO).
- Annual Leave: Calculate annual leave balances for each employee. Ensure that any unused leave is accounted for.
- Termination Payments: If any employees have left during the year, ensure that termination payments are correctly calculated and reported.
- Contracts: Review employment contracts to ensure they align with current laws and regulations.
- Policies: Evaluate HR policies (e.g., code of conduct, leave policies) and update them if necessary.
- Keep up-to-date with tax changes: Each year, there may be tax changes that you need to be aware of. These include changes in tax law and deductions or concessions for small businesses.
- Ensure your tax agent is registered: Check your tax agent is registered with the Tax Practitioners Board (TPB).
- Prepare for the New Financial Year: Assess staffing needs and plan for recruitment or restructuring.
Payroll compliance: an essential aspect of running a business in Australia
As an employer, you are responsible for ensuring that your payroll practices comply with all relevant legal requirements, including the Fair Work Act, PAYG system, Superannuation Guarantee Act, and Single Touch Payroll.
Staying up-to-date with legislative changes, such as the Superannuation Guarantee Increase, PAYG Tax Table Updates, Minimum Wage Adjustment, and Fair Work Act Amendments, is critical to avoid penalties and maintain ethical business practices.
Adhere to best practices and legal requirements to ensure your payroll processes are fair, transparent, and compliant with Australian regulations.
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Get qualified advice from local experts with in-depth knowledge of payroll management, compliance regulations, and industry best practices.
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PaysOnline offers a comprehensive payroll and HR solution for your business tailored to meet the specific needs of Australian payroll processing.
Our system is designed to provide you with a seamless payroll processing experience backed by a team of seasoned professionals who know the ins and outs of the Australian payroll landscape.
Stay Compliant with Australian Regulations
We proactively monitor and document your compliance activities and keep track of regulatory changes, providing you peace of mind so that you can focus on your core business functions.
Our system seamlessly integrates with the Single Touch Payroll (STP) reporting framework mandated by the Australian Taxation Office (ATO).
Keep Comprehensive Records
PaysOnline provides a reliable solution to help businesses keep accurate and comprehensive records.
Our system ensures that all necessary information is properly documented and organised, reducing the risk of penalties and ensuring accurate record-keeping practices.
Our PaysOnline HR feature empowers clients with comprehensive tools to record, store, access, analyse, and manage all HR-related information, all from one convenient place.
Timely and Accurate Payments for Every Employee
We implement strict quality controls and verification steps to ensure your payroll is processed correctly.
Our Funds Transfer Service guarantees timely and stress-free payments for your employees.
Secure Payroll
With ISO 27001 accreditation, PaysOnline uses industry-leading security measures to protect your data and comply with all relevant regulations and standards.
Take control of your payroll tax obligations effortlessly
At PaysOnline, we provide two flexible options to help you easily manage your payroll tax obligations.
You can opt for a comprehensive report that assists you in completing your lodgement with the Office of State Revenue (OSR).
Alternatively, you can designate us as a user in the OSR system, which allows us to handle the tax filing process on your behalf. This added convenience saves you time and effort and ensures that your payroll taxes are filed accurately and on time.
Flexible and Scalable Payroll Solutions
We provide customised solutions for various industries, including aged care, education, manufacturing, finance, and more, ensuring that our technology meets their specific needs.
Dedicated Support
At our company, we are dedicated to providing our customers with a seamless experience. To ensure this, we offer personalised service by assigning a dedicated payroll specialist to assist you in a timely and efficient manner. You can rest assured that you will be speaking with real people who are familiar with your payroll processes and can assist you effectively.
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