Director James Solomons latest article on Kochie’s Business Builders
Staff payment problems can lead to low morale, poor productivity and perhaps even a government audit. Here’s how to avoid common mistakes when it comes to paying your employees.
Statutory maternity or paternity payments: make sure you track leave start and end dates.
Understand any tax exemptions: these may apply to certain pay components.
Superannuation: ensure that your default employer superannuation fund meets all the minimum insurance and benefit requirements
Public holidays and holiday accruals: ensure you factor in holidays and calculate what’s owed at the end of employment for holidays accrued.
New joiners and leavers: make sure they are included in the system, that TFN Declarations are submitted and the correct start and end dates are recorded.
Employee expenses: sometimes these need to be shown as taxable allowances on an employee’s PAYG payment summary.
Meet important deadlines: tax payments and reporting to the appropriate government authority is important to get right.
When is a contractor an employee?
You may chose to hire a contractor instead of hiring an employee but in some circumstances they may actually need to be treated as an employee. There are a number of tests that will determine their status.
For example, you may hire a contractor but if you are their only client, the ATO might conclude that they are a deemed employee.
As long as you read the rules thoroughly, you can avoid being caught out and being forced to back pay super and withholding tax.
Ensure that for all contractors that you engage that you go through the relevant steps to correctly classify their status and ensure all the relevant paperwork is filled out.
The ATO has an ‘employee or contractor’ decision tool which it encourages all businesses and employers to use to help them make the right decision. It can be found here.
Involve your staff in payroll decisions
As much as your employees may love working for you, it’s unlikely they’d do so if they weren’t being paid! Regular, timely payment is vitally important to your staff.
Small businesses may be flexible enough to accommodate their employees’ payroll requests. For example, some companies choose to pay on a fortnightly rather than a monthly basis. This often gives staff greater control over their bill payments and expenses.
Even changing the monthly payment date could be helpful. For example, if most household bills fall due on the 28th of the month, choosing a payroll date of the 26th rather than the 30th could make all the difference to your employees.
Involving your staff in these decisions will make them feel more valued. And having staff that feel valued is proven to enhance productivity and reduce staff turnover.
Understand tax rates and employee entitlements
Tax rates & entitlements can vary greatly from one employee to the next and can change for a wide variety of reasons. Award rates of pay, marginal rates of tax and tax brackets, annual leave and sick leave accruals, superannuation entitlements and more complex items like salary sacrifice, fringe benefits and allowances all need to be considered and it can be easy to make a mistake if you don’t understand the basics.
Get them wrong and you’ll have some costly recalculations to carry out, not to mention embarrassing explanations to the ATO and your employees.
So keep track of your employees’ situations and update all changes promptly. Ensure that they are getting paid under the right conditions and that all entitlements are being correctly calculated. If in doubt seek advice.
Mistakes happen. If you discover an overpayment or underpayment, discuss it with the staff member concerned before you take action. If you take an overpayment back in one go, it could cause financial hardship for your employee.
Even if it doesn’t, it’s unlikely to improve their morale.
If you take back smaller amounts stretched out over several months, it’s likely to work out better for them and your business.
Check the government websites
The Australian Tax Office has an extensive range of information specifically for small businesses and their payroll needs which can be found here.
Fair Work Australia has all the respective award rates and minimum employment conditions that must be provided to all Australian workers including details on maternity/paternity leave entitlements.
When setting up your payroll systems or making changes to it, you should seek advice if you are unsure.
Get your accountant or bookkeeper to check over it for you because if you get it wrong it can be a painful and costly exercise to find an error and then correct it, especially if it has gone unnoticed for a long period of time.
As an employer you have a legal responsibility to pay your employees the right amount and to withhold the right amount of tax as well as calculate and pay the right amount of super.
Have backup systems in place for added security Ensure that more than one person in your organisation knows how to run the payroll as well as make payments to your employees. You just never know when the regular payroll processor will be unable to perform this important task!
Also it is a good idea to either have a second bank account available to pay your employees in case your main account isn’t accessible for one or more reasons. And in the unlikely event that internet banking is down, ensuring you have telephone banking details handy is advisable.
And it goes without saying that your employees personal details should be stored securely. A breach of their private information would not be received well.
Payroll is important not only from a financial point of view, but it directly affects your employees so it’s key to the success of your business.
The information contained in this article is general in nature and does not take into account your personal situation or you business’ circumstances. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant or other qualified professional.