Payroll is the process of calculating the earnings of the employees, Pay As You Go Tax, Superannuation, Annual Leave and more. It’s important to get it right both if you use an external Payroll Service or process in house. The term payroll can refer to:
- A business’s financial records of employees.
- The payment of employee wages.
- Annual records of employee wages.
In an organisation, payroll can be the biggest overhead expense, and the process of payroll may be complex. Therefore, it is necessary to understand each component of payroll, helping you to better understand a company’s finances. The Payroll function must be compliant with labour law and tax law, both Federal and State. The Human Resources function covers the processing of employee pay and also includes hiring and firing, leave entitlements, bonus and salary entitlements.
Record Keeping for Payroll and Obligations
Record keeping is an important aspect of payroll. It is important to keep accurate and complete records for all employees including items such as wages paid and time worked. Payslips are issued to each employee. Maintaining payslips helps to ensure that employees receive their correct wages and entitlements.
The employer obligations for record-keeping must be:
- readily accessible to a Fair Work Inspector,
- Legible and in plain simple English,
- Maintained for seven years,
- Have an audit trail and the reason for changing, if any,
- Not be false or misleading.
How should employee records be maintained?
An employer must ensure that the employee records are maintained in a private and confidential manner. It is important that no one can access these records other than the employee, their employer, and relevant payroll staff. As a general practice, employers must make copies of employee records available at the request of the employee or former employee.
However, in the event of an inspection by Fair Work Inspectors and organisation officials (such as a trade union), then the employee records must be made accessible. The Fair Work Inspectors use the records to determine if there has been a breach and if the employer is maintaining workplace laws.
What are the details to be included in employee records and pay records?
The Fair Work Act 2009 and Fair Work Regulations 2009 require that the below details are maintained for each employee.
- the employer’s name,
- the employer’s Australian Business Number (ABN),
- the employee’s name,
- the employee’s commencement date
- whether it is a full time or part-time and permanent, temporary or casual and
- working contract or agreement (where no agreement exists, the relevant award should be noted via an appointment letter)
The records of pay must include the following details:
- the rate of pay for each employee,
- any deductions from the gross pay and
- details of any incentive-based payment, bonus, loading, penalty rate, or other monetary allowance
The work hour records must include:
- a record of hours worked and if a casual worker then the hourly rate,
- a record of overtime hours worked each day, or the times that the employee started and finished working overtime hours and
- a copy of the written agreement where the employer and employee have agreed on the employee working hours and times
The leave records must include:
- leave taken and
- the balance of the employee’s entitlement to that leave from time to time.
Request letters of the annual leave must be maintained. The agreement must include the number of days leave to be taken and from which date. These can be easily maintained on a system like Xero.
What if an employee is being terminated?
When an employee is being terminated, it is important that the employer maintains records to show if the termination was by consent, notice or other details. If a business has new owner, the Fair Work Act 2009 dictates that the previous employer is required to transfer all employee record concerning a transferring employee.
Are there pay slip obligations?
The simple answer is yes. The employees must be issued payslips:
- within one day of being paid, even if an employee is on leave,
- it can be either electronic form or hard copy.
As a best practice, the payslips are best in plain and simple English. The payslip must include the details of the employer, employee name and date of payment. It should also have any details of the payments, deductions etc, for each pay period.
When can deductions be made by an employer?
Under the Fair Work Act 2009, an employer is permitted to make a deduction from an employee’s pay only if one of the following applies:
- the employee has, in writing, authorised the deduction,
- the deduction is authorised by the employee in accordance with a registered agreement,
- the deduction is authorised by the Fair Work Commission or
- the deduction is authorised under the law or an order of a court.
The deductions which are generally made are income tax deductions, health insurance contributions, and trade union dues. The Fair Work Regulations 2009 treats certain deductions as reasonable. Some of these include recovery of private costs for credit cards, mobile phones, or travel expenses.
What are the best practices for issuing electronic payslips?
In Australia, where electronic payslips are provided to an employee, it must include the same information as hard copy payslips.
Employers must:
- give electronic payslips to employees via email and
- issue electronic payslips in an easily printable format.
By way of best practice, employers should:
- issue electronic payslips to employees securely and confidentially,
- ensure that employees can access and print their electronic payslips in private.
The Fair Work Ombudsman may conduct enforcement actions with relation to contraventions on pay slip obligations and record keeping. Under the Fair Work Act 2009, employers can be issued an infringement notice when he or she fails to meet record-keeping and pay slip obligations. The employer may be told to pay a fine. An employer has 28 days to pay any penalty infringement notice. If the Fair Work inspectors find that there is a willful or repetitive breach, then the matter may be taken to court.
Things an employer must keep in mind to prevent contraventions?
The Fair Work Act 2009 prohibits giving payslips that are false or is misleading. An employer must not intentionally provide false or misleading information or documents to the Fair Work Ombudsman or a Fair Work Inspector.
Handing over false or misleading information or documents to Fair work officials may even become a criminal offence. There will be penalties levied for improver record keeping and were unable to assess for inspections. If an employee shows that the employer has not complied with record-keeping, then the employer may file an allegation in court.
Employers can find different templates created by the Fair Work Ombudsman to meet the requirements of record-keeping and pay slip obligations.
Why does payroll need to be taken seriously by employers?
Payroll processing and record-keeping should be accurate to avoid serious risks to your business. Such errors can be very costly and lead to loss financially and loss of time dealing with the complaint. Business owners are ultimately responsible if errors occur. This would lead to heavy fines levied by the Fair Works Commission or by the Australian Taxation Office and possible legal fees.
Mishandling of employee pays can lead to disrepute and interfere with the trust and confidence of employees and sometimes suppliers and customers. This can disrupt your business reputation.
Sadly, mistakes in payroll are not rare. They are sometimes caused by poor systems and a lack of knowledge about the legal consequences. There could be misunderstandings where terms and conditions, entitlements and the agreements are not completely understood.
It is vital that an employer has both a great payroll system and well-trained payroll staff.
What are the common mistakes which can occur in payroll?
Underpayment: Employers must ensure that their employees are paid all entitlements accurately. These should be correctly calculated by the employer. It must be calculated correctly to include the base salary, penalties, overtime, allowances etc. Deliberate underpayment is referred to as wage theft. This is a serious offence. Accidental underpayment also carries penalties and loss of reputation.
Overpayment: This is also harmful to the viability of the business. Employees can be asked to repay the amounts, but this causes considerable distrust and has a negative impact on the culture within the business. In some instances, if it is for an ex-employee, then money may not be returned.
Unlawful deductions: Legally, an employer cannot deduct money from your employee’s wages unless it’s for a lawful purpose. Some examples include PAYG, child support payments, or student loan repayments. Apart from these deductions, the employee should agree to the deduction in writing. Although the law is clear, many make mistakes in this area. Employees can take claims of unlawful deductions to the Fair Work Commission. The Fair Work Ombudsman is actively encouraging employees to prosecute such businesses.
How to be compliant with the payroll?
Consider using a Professional Payroll Service to prevent problems and ensure compliance. It is important that employees are paid at least the minimum wage for each hour they work. The national minimum wage is the lowest which a worker can be paid.
Generally, most of Australian employees are employed in accordance with an award that covers the industry or the occupation. The minimum rate in awards is higher than the national minimum rate by the Fair Work Act 2009. Superannuation payments must be paid at the required rate in addition to the minimum wage.
In addition, award rates of pay apply to all industries, and these are most often in excess of the minimum wage. Each employee should be assigned an award and a level within the award. You should reference the award and level of each employee in their employment contract or letter of appointment. You must refer to the correct award and correct level, e.g. someone working as an electrician cannot be paid under the clerical award. Similarly, a senior electrician cannot be assigned a level of junior.
An employer has to be compliant with:
- Modern Awards,
- National Employment Standards,
- Record Keeping,
- Payroll Tax (if applicable)and
- Single Touch Payroll and Superstream.
Modern Awards for payroll compliance: This sets out the minimum entitlements on top of the National Employment Standard (NES). This should cover hours of work, the base rate of pay, allowances, mandatory breaks, penalty and overtime rate and rostering. An employer needs to check under which modern award the business falls under and ensure that the payroll compliance meets both the NES and Modern Awards. Most businesses struggle with interpreting modern awards, and it is a big payroll compliance issue.
National Employment Standards for Payroll Compliance
This is a set of 10 minimum employment entitlements, which is important to each employee in Australia. This includes.
- A maximum weekly 38 hours for full-time employees or less for casual or part-time employees. Employees can refuse additional hours of work if unreasonable,
- Flexible work arrangements in terms of hours, patterns or work location with the same employer for a year or more,
- Parental leave for employees for the birth or child adoption,
- Paid annual leave of a month depending on a full time or part-time employee ordinary hours of work,
- Other kinds of leave for personal care/bereavement leave,
- Community service leave,
- Public holidays,
- Long service leave,
- Notice of termination relating to employment and redundancy pay and
- The employer must provide every new employee with a copy of the Fair Work Information Statement.
It is important that an employer is compliant with the above minimum standard.
Record Keeping: As discussed above, record keeping must be completed in an accurate manner. Record keeping is tedious when done manually. Cloud payroll systems like Xero will certainly assist. This helps with specific record-keeping, and documentation can be retrieved very easily during an inspection by a Fair Works Inspector.
Single touch payroll (STP) for payroll compliance: The Australian Taxation Office is working towards digital business records, and STP helps with tax reporting and superannuation. Digital solutions help improve accuracy, efficiency and timeliness when it comes to payroll compliance. This method ensures that employees prevent many of the common problems. Superstream is another payroll compliance government initiative that employers must comply with. It helps to integrate the transferral of superannuation money across a uniform system between employers and adjunct service providers.
Payroll Tax Compliance: This is a self-assessed state and territory level tax relating to larger payrolls. Businesses operating in multiple states should be careful of different thresholds that can impact Payroll Tax obligations.
Legal Obligations of the employer: As an employer, you should ensure compliance with equal opportunity laws. When employees are recruited, it is not lawful to discriminate based on age, gender, race, family status etc. Fair Work Ombudsman helps to avoid any mistakes regarding pay and employment conditions. Tax and superannuation provide information regarding PAYG, superannuation payments and employer obligations. Keeping employment records is needed with leave entitlements.
Employers need to ensure a safe workplace for their workers. It is important to ensure that the workers’ compensation insurance is arranged. Employers should also have an injury management process with an injury management system.
Payroll must be a Priority.
The process of processing pays and paying people is complex. If it is not done correctly, it can cause a major risk for your business. The person in charge of payroll is critical to an organisation. This person should be trained and experienced.
Legislation and modern awards change frequently, and employers must be up-to-date with classifications, pay rates, leave loading, and allowances. Thus, a robust payroll system helps with accuracy, automation, and record-keeping. Payroll software must be designed and configured according to the Australian business environment. Combining the payroll processes with a good HR team ensures that an organisation is meeting legal requirements.
At Bookkeepers 2 Business, we see many payroll errors, where good-intentioned employers make frightening mistakes!
If you would like help with your payroll, please speak with us and consider using our professional payroll service. With our system, you don’t need to wait for your bookkeeper to calculate net pay for your casual staff. It provides a simple Tax and Net Pay calculator that is available to you 24 hours a day, seven days a week. It also provides the details to our office, where we process the payslips accurately for you.
