Managing payroll effectively is crucial for small business owners, yet many face challenges that can lead to costly mistakes. Understanding these common errors can help businesses streamline their payroll processes, ensure compliance, and maintain employee satisfaction. Here are some of the most frequent payroll mistakes and how to avoid them.

1. Incorrect Classification of Employees

One of the most prevalent payroll errors is misclassifying employees. Workers can be classified as either employees or contractors, and this classification affects their entitlements, including superannuation, leave, and tax obligations. Misclassifying an employee as a contractor, or vice versa, can lead to legal issues and fines. To avoid this mistake, it’s essential to understand the differences between employees and contractors and ensure accurate classification based on the nature of the work and the terms of engagement.

2. Failing to Comply with Award and Enterprise Agreement Requirements

Australia’s employment laws include various awards and enterprise agreements that outline minimum pay rates, conditions, and entitlements for different industries and roles. Small business owners sometimes overlook these legal requirements, leading to underpayment or incorrect calculation of employee entitlements. Regularly review and stay updated with relevant awards and agreements to ensure compliance and avoid potential disputes with employees or regulatory bodies.

3. Errors in Payroll Calculations

Payroll calculations can be complex, involving base wages, overtime, allowances, and deductions. Small businesses often make errors in calculating pay rates or fail to account for additional factors like penalty rates or loadings. Utilizing reliable payroll software and double-checking calculations can help prevent these errors. Regularly auditing payroll processes and conducting checks can also catch mistakes before they become significant issues.

4. Inaccurate Record-Keeping

Maintaining accurate records is a legal requirement in Australia. Small business owners must keep detailed records of hours worked, wages paid, and any deductions made. Poor record-keeping can lead to disputes with employees, difficulties during audits, and penalties from regulatory bodies. Implementing a robust payroll system and regularly updating and reviewing records can help ensure accuracy and compliance.

5. Ignoring Superannuation Obligations

Superannuation is a critical component of employee entitlements in Australia. Failing to make timely superannuation contributions or incorrectly calculating the superannuation guarantee can result in substantial penalties. Ensure that superannuation contributions are calculated based on the correct percentage and paid to the employee’s nominated super fund within the required timeframes.

6. Not Staying Updated with Tax Changes

Australian tax laws and rates can change frequently, and small business owners may struggle to keep up with these changes. Incorrect tax withholding or failing to apply the correct tax rates can lead to compliance issues and financial penalties. Regularly review updates from the Australian Taxation Office (ATO) and consider consulting with a tax professional to ensure your payroll system reflects the most current tax rates and regulations.

7. Inadequate Training for Payroll Staff

Payroll processes can be intricate, and inadequate training for staff responsible for payroll can result in errors. Investing in proper training and professional development for payroll personnel ensures they understand the complexities of payroll administration, including compliance with legal requirements and use of payroll software.

Conclusion

Avoiding these common payroll mistakes requires vigilance, accurate record-keeping, and a solid understanding of Australian employment laws. By addressing these issues proactively and investing in reliable payroll systems and training, small business owners can ensure smoother payroll operations, compliance with legal obligations, and greater satisfaction among their employees. Regular audits and consultations with experts can further help in maintaining an error-free payroll process.

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If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

How can we help?

If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au  or arrange a time for a meeting so we can discuss your requirements in more detail.

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Single Touch Payroll (STP) is changing

1. Changes to STP reporting from 1st July 2021

Employers should be reporting through Single Touch Payroll (STP) unless they only have closely held payees, or they are covered by a deferral or exemption. There are changes to STP reporting for small employers with closely held payees and quarterly reporting for micro employers from 1 July 2021. This may affect how you report to the ATO.

Employers with closely held payees.

From 1 July 2021, employers must report their closely held payees through STP. You can choose to report these payees each pay day, monthly or quarterly.

What is a Closely Held Payee?

A closely held payee is an individual directly related to the entity from which they receive payments.

For example:

• family members of a family business,
• directors or shareholders of a company,
• beneficiaries of a trust.

You must continue to report information about all of your other employees (known as arm’s length employees) via STP on or before each payday (the statutory due date).

Ways to report amounts paid to your closely held payees

From 1 July 2021, amounts paid to closely held payees can be reported through STP in any of the following ways:

• Report actual payments on or before the date of payment – whenever you make a payment to a closely held payee, report the information on or before each pay event, or
• Report actual payments quarterly – report your actual payments to closely held payees quarterly. Each quarter, when your activity statement is due, report all payments made in that quarter.
• Report a reasonable estimate quarterly – report amounts equal to or greater than a percentage of gross payments and tax withheld from the latest year, across each quarter.

Choosing how you report

You can choose which reporting methods you want to use. Not all reporting methods will suit your business circumstances. If you can report actual payments, you should report either quarterly or on or before the date of payment.

Example 1

ABCD Pty Ltd has one closely held payee, who is the company director.

Throughout the year, the director draws money from the business to use for personal expenses and promptly records this in the company books of account as loans the company has provided her.

She visits her tax agent in December and June each year for assistance and during those visits they determine a director’s fee amount to pay which discharges the loan.

ABCD Pty Ltd chooses to report actual payments on or before the date of payment. This is because when a payment is made, the actual amount at the time of the payment is known, and the tax agent can help lodge the STP report at the same time.

2. STP – Expanding (Phase 2)

What Single Touch Payroll Phase 2 is?

In the 2019–20 Budget, the Government announced that Single Touch Payroll (STP) would be expanded to include additional information.

This expansion of STP (also known as STP Phase 2) will reduce the reporting burden for employers who need to report information about their employees to multiple government agencies. It also supports the administration of the social security system.

The mandatory start date for STP Phase 2 reporting will be 1 January 2022.

What’s next?

There is nothing you need to do right now. The ATO is working closely with digital service providers who will update their STP-enabled software (for example, Xero software).

We have published a factsheet which covers the key changes and more detailed information will be available soon.

It’s important to remember that all STP-enabled solutions have different functions and updates for the expansion will be offered in different ways. What you need to do to set up will depend on what product you use and how you manage your payroll.

The ATO will soon be providing more information about what to do if you need additional time to transition to STP Phase 2.

What is changing?

The additional information you will need to report should already be captured in your current payroll software.

The key changes to the STP report will include:

Disaggregation of gross – currently, your STP report includes a gross amount, which is the total of many different components and payment types. Because some of these are treated differently for social security purposes, you will now need to report more detail.

Your STP report will separately itemise the following components of the gross amount:

• Allowances
• Bonuses and commission
• Directors Fees
• Overtime
• Paid Leave
• Salary Sacrifice
• Employment conditions
• Income type

Examples of income types that can be reported include:

• Salary and wages (SAW) — this is the most common income type and you may also know it as Individual non-business (INB) income
• Closely-held payees (CHP) — this income type will help us identify where you are using the concessional reporting arrangements for amounts paid to closely-held payees
• Inbound assignees to Australia (IAA) — this income type will help us to identify where you are using the concessional reporting arrangements for amounts paid to inbound assignees
• Working holiday makers (WHM) — this income type will help to identify where the individual being paid is subject to the different tax rates which apply for working holiday makers.

Country codes

In some circumstances, you will need to report a country code. For example, if you make a payment to an Australian resident working overseas or to a working holiday maker, you will need to provide information about the host or home country.

Country codes will need to be reported about the:

• home country of employees who are inbound assignees or working holiday makers
• host country of the employees who are Australian residents working overseas.

You will need to report a Country code for the Foreign employment income (FEI), Inbound assignees to Australia (IAA) and Working holiday maker (WHM) income types.

Lump sums

There are changes on how lump sum payments will be categorised. These changes include the following:

• Lump sum E – If you make a lump sum E payment, the amount for each financial year relevant to the lump sum E amount paid must now be included in your STP report before finalising your employee’s records. In most cases, this will remove the need for you to provide lump sum E letters.
• Lump sum W – Return to work payments, which are paid to induce a person to resume work (for example, to end industrial action or to leave another employer) were previously included in gross. In Phase 2 reporting, this will now be reported separately as a lump sum.

Reporting previous Business Management Software IDs and Payroll IDs

You may have the option to provide us with previous Business Management Software IDs and Payroll IDs in your STP report. This might occur when you have had a change of business structure or where you have changed software and do not have the ability to zero out or finalise the previous records.This will help us reduce and fix issues with duplicate income statements for employees in ATO online services.

This is optional and not all STP-enabled solutions will offer this functionality.

Child support garnishees and Child support deductions

You will have the option to include Child support garnishees and Child support deductions in your STP report. This will reduce the need to give separate remittance advices to the Child support registrar.

What isn’t changing?

While you will need to report additional information in your STP report, there are many things that aren’t changing, such as:

• the way you currently lodge your STP report,
• STP reports are still due on or before pay day unless you are eligible for a reporting concession,
• the types of payments that are in-scope for STP reporting,
• taxation and superannuation obligations, and
• end of year finalisation requirements.

Please find attached an ATO published factsheet which covers the key changes. The ATO has promised that there will be more detailed information available soon.

Expanding Single Touch Payroll factsheet (PDF, 227KB) Download Here

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

Single Touch Payroll Reporting | ATO changes

The Tax Office has laid out some of the major changes to reporting for businesses under Phase 2 of Single Touch Payroll (STP). The federal government said in the 2019–20 budget that Single Touch Payroll would be expanded to include extra information.

The mandatory start date for STP Phase 2 for businesses will be 1 January 2022.

However, the ATO reassured businesses that there is nothing they need to do right now, and that it is working closely with digital service providers on updating their STP-enabled software. Further, it has published a fact sheet which covers the key changes and more detailed information will be available soon.

“It’s important to remember that all STP-enabled solutions have different functions and updates for the expansion will be offered in different ways. What you need to do to set up will depend on what product you use and how you manage your payroll,” the ATO said.

“More information about applying for additional time, if required, to transition to STP Phase 2 will be provided soon.” One of the major changes is that businesses will need to provide extra information in their STP report regarding employment conditions.

The information will need to include employment basis (whether an employee is full-time, part-time or casual), tax treatment to help the ATO identify the factors influencing how a business calculated the pay-as-you-go (PAYG) withholding, as well as information if an employee leaves that will reduce the need for a business to provide them with separation certificates.

The ATO will also introduce the reporting of income types and country codes to identify payments employers make to their employees with specific consequences and to make it easier for them to complete their individual income tax return. It said the reporting of income type and country code will help them identify where a business is using a concessional reporting arrangement such as for closely held payees.

Further, businesses will also need to report salary-sacrificed amounts in their STP report, which is aimed at making it easier for employees to understand their superannuation entitlements when looking at their income statement.

Businesses can view the full fact sheet of the ATO’s changes to STP by clicking here.

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.