Now more than ever businesses must take stock of payroll, making sure they comply with the government’s strict demands. There is no doubt that these requirements are significant - failure to comply can close a business down.
The direction taken by both the ATO and the Fair Work Ombudsman should remind all business owners that payroll compliance monitoring must be an ongoing priority.
We explore common mistakes made within payroll, and the risks associated with non-compliance.
The trouble with complacency
It is so easy to let payroll roll along in a business-as-usual manner, as the ‘real work’ of the organisation takes priority. Yet in neglecting payroll compliance issues, many small to medium businesses risk significant penalties.
Take for example the temptation to just launch and leave an ‘out of the box’ payroll software product. Once internal systems such as payroll software are in place, it can certainly seem like one less business variable to worry about – but is this correct?
Franchisees and other smaller businesses have a wide range of changing demands to manage, and often don't have a deep enough knowledge of the software to judge whether it has been rolled out accurately. And it pays to remember, bookkeepers are not specialists in awards and complex termination tax calculations when it comes to payroll.
Payroll software that is set up incorrectly can result in non-compliance, resulting in superannuation shortfalls, confusion with overtime versus penalty loadings and incorrect employee payments.
Those running payroll systems, as well as business owners themselves, all have a responsibility to review their current payroll software. Any neglect of the regulatory requirements of payroll systems is open to large government penalties.
STP deadline looming
Consider the introduction of the game-changing single touch payroll (STP). While the ATO only mandated the use of STP for larger companies in July 2018, it is now essential that smaller businesses (19 employees and under, including franchises) implement an STP strategy by July 1 this year.
So why did the government make the move to STP mandatory? In short, the innovation creates an automatic pathway of superannuation and tax information straight to the ATO each pay cycle. In turn, employees via MyGov can stay on top of their tax and super situation in an almost live stream.
This is a change that channels important information to both the ATO and taxpayers. It’s popular and it’s not going anywhere – any failures in implementing STP will be pinpointed and penalised.
Added to that, payroll software utilising the cloud must also have multi-factor authentication (MFA) up and running in order to comply with the law. Considering the huge amount of employee data now travelling to the ATO via STP compliance, data security has made multi factor authentication a crucial addition.
The risk of non-compliance
Ignorance is certainly no defence when it comes to payroll. For example, a franchisee might be unaware of recent changes to the minimum wage, or perhaps have overlooked one of the ten National Employment Standards (NES) that apply to current employees.
As recent cases before the Fair Work Ombudsman (FWO) demonstrate, making any payroll system errors with employee rights or record keeping can lead to massive penalties for business owners.
The emphasis is upon employee entitlements, rather than employer intent. In fact, it will be up to business owners rather than employees to prove what happened. This is called the ‘reverse onus’ in law and can be very hard to prove in court. It’s not a situation any payroll department wants to find itself in!
Trying to fix the problem – too late
If business owners, franchisors, subsidiaries and parent companies actively know they’re non-compliant yet do nothing, penalties will certainly be significant. And despite the long and probing reach of the regulators, some owners and payroll system operatives still unfortunately try to create ‘retrospective compliance’.
As seen in the 2017 case of Fair Work Ombudsman v Kang, Mr Kang’s attempt to create false records in a panicked response to an audit was viewed in a very harsh light by the Ombudsman.
The business was penalised accordingly, both for failing employees and for providing false recordkeeping. It was described as a “… deliberate, particularly serious and a calculated attempt to mislead the Fair Work Ombudsman in the course of their investigation.”
It’s very clear that when it comes to payroll non-compliance, it is neither wise or even possible to shut the gate once the horse has bolted. Payroll systems must be agile in relation to ever-changing regulatory requirements, and should also facilitate tailored approaches to business requirements.
Updating payroll software part of managing the risks
The blame for any non-compliance can fall on the shoulders of both businesses and individuals. Seeking expert advice on the effectiveness of current payroll software is essential. In fact, it should be an important first step in any organisation’s risk management strategy. After all, neither Fair Work nor the ATO are showing any signs of reducing their ‘no-excuses’ approach to payroll non-compliance!
If you'd like assistance in ensuring your payroll systems are compliant, contact E-Payoffice for expert advice and implementation.
About the author: Wendy Blanch is an experienced payroll professional, and Director of payroll solutions company E-payoffice .