1. Wage theft legislation
Wage theft legislation is a critical issue for employers, and many do not take seriously.
It applies to all states of Australia and is defined as stealing. It is further defined as deliberate, intentional behaviour leading to under or non-payment of wages and entitlements and is a criminal offence. Deliberate wage theft occurs through unpaid or underpaid work hours.
Complete and accurate payroll records incorporating most of the items in this article provide your business with the necessary protections against accusations of wage theft. This holds the same level of importance as being able to produce receipts for items you have purchased should you ever be accused of stealing them.
2. Interpreting your award
Award interpretation is a common source of payroll errors.
TMF Group’s latest sub-report, “HR & Payroll: Navigating Complex Requirements in Turbulent Times”, ranks 77 countries from the most complex to the least complex jurisdiction.
In the 2020 report, Australia ranked 21st most complex for HR and payroll management. Since the release of this report, more changes have been made to Australian awards and payroll requirements, which add to that complexity.
For these reasons, it is greatly beneficial to your business to have access to help unpack the awards you and your employees work under. ABBS engages HR specialists to assist us and our clients in navigating and interpreting them.
3. Employment agreements
Employers often avoid using employment agreements for employees because they don’t see their importance or lack the skills to develop them. This can be a fatal mistake. An employment agreement can incorporate an annualised wage arrangement between an employer and an employee to cover various conditions. (See point 6)
Employment agreements are crucial legal documents that establish the terms and conditions of employment between an employer and an employee. They cover everything from job responsibilities to compensation packages and confidentiality clauses, providing clarity and protection for both employers and employees. Clear, comprehensive agreements can help prevent misunderstandings and disputes, fostering a productive and mutually beneficial work relationship, which is the goal of most employers.
4. Timesheet Records
The legislative requirement is that “Employers have to keep time and wage records for 7 years.” https://www.fairwork.gov.au/pay-and-wages/paying-wages/record-keeping#:~:text=Employers%20have%20to%20keep%20time,legible
“Employers can also be penalised if Fair Work choose to take a matter to court. Employers who haven’t kept records, or made records available for inspection may have to prove to a court that they didn’t underpay an employee.” (The onus of proof rests on the employer, not the employee)
The lack of timesheet use in the workplace I see as the most dangerous error an employer can make because;
- It means no record of time and hours worked by an employee.
- This means an employee can later complain to Fair Work for unpaid wages. Yes, it happens more often than you may think.
- It means that without this record, the employer cannot prove an employee to be incorrect, which means, by default, the employer will lose the case.
- This could lead to claims or accusations of wage theft, which is a most serious position, and without records, the employer is not in a very good position to defend themselves.
The basic benefits of timesheets to a business are;
- Verifies the accuracy of payroll hours worked, leave taken, overtime and payments made.
- Withstands the test of the payroll theft legislation.
- Withstands the test of employees lodging incorrect claims for unpaid wages.
- Compliance with record-keeping laws and regulations.
- Accountability
In any case, timesheets are essential and a must-do for payroll management in any business organisation. They are also potentially the costliest payroll mistake a business owner can make.
5. Director payments and wages
Apart from sole traders and non-working beneficiaries of a trust, directors must process and report their wages, deduct tax and pay superannuation. This is also true for working trust beneficiaries who regularly take funds from the business because of the services provided to the business.
These payments must be reported with each pay event or, at minimum, once per quarter with the quarterly BAS lodgement.
NOTE: If working in the business and no wages/ funds are taken from the business, but there is an intention to take an annual wage at the end of the year, an estimate of wages needs to be made and reported each quarter at a minimum.
6. Payments for annualised wages/salaries
An award can allow an annualised wage arrangement to cover entitlements like:
- minimum weekly wages
- travel/car allowances
- penalties
- overtime
- allowances
- annual leave loading
In certain scenarios, contracts are structured to compensate employees with a salary encompassing specific entitlements outlined in an award.
Nonetheless, potential risks loom when the employment contract lacks clarity regarding which entitlements are covered within the salary package or when mechanisms are lacking to monitor whether salaries adequately reflect the value of these entitlements.
This lack of clarity can lead to inadvertent oversight of entitlements such as overtime pay, which can be detrimental to your business and your employees.
NOTE – 1: Employment agreements need to be structured carefully to ensure the clarity of which award conditions, loadings, and penalties and the extent to which they are covered in the annualised wage agreement, award paragraph, and clause.
NOTE – 2: After each fiscal year, a calculation based on the award must be made to ensure that the employee was properly paid for the hours worked, including any loadings and penalties for the year. This calculation is to be compared with the actual payment, and should there be a shortfall, an extra payment is made to the employee.
7. STP reporting each pay event
Registering your payroll software ID with the ATO through your ATO authorisation manager sets up reporting STP from your payroll software.
The STP reporting deadline is usually the same as your payday. To comply, you must have lodged all of the required information with the ATO by the day you pay your employees. By 1 July, you should have lodged the final figures for the financial year that just ended.
The penalty for non-compliance is $210 for every 28 days your report is overdue.
8. Superannuation payments and OTE
Non-payment of employee superannuation is an increasingly problematic issue in Australia that carries severe implications for an employer.
- Personal liability to the employer for all unpaid super and penalties.
- Lodgement of Superannuation Guarantee Charge Statement, which incurs interest of 10% per annum plus a $20 per employee administration fee per quarter.
Superannuation payments are required on all Ordinary Time Earnings (OTE) payments in your payroll. Non-OTE payments do not apply to superannuation payments. Many non-OTE payments can be contained within an award; the most common is the overtime penalty rate. If this issue is not carefully considered, and the payroll system is not set up accordingly, overpayment of superannuation is not only possible but quite likely. The extent of overpayment will depend on the payroll size and any penalty rates being paid that are non-OTE payments.
Moves are underway to introduce legislation requiring the payment of employee superannuation on the same day wages are paid. This is expected to come into effect in 2025.
9. EOFY payroll finalisation
This is a finalisation of the business’s STP reporting over the year, reconciling the payments made to employees with the STP reports sent to the ATO with each pay event.
Completing this process provides the Income Statement for the employee in their MyGov account which they will use to complete their income tax return for that year.
You finalise your STP data by making a finalisation declaration. A finalisation declaration is a declaration in the approved form lodged by 14 July each year indicating that you have fully reported for each employee for the financial year.
The penalty is $210 for every 28 days your report is overdue.
10. Termination payments
Employment termination payment (ETP) is a payment made in consequence of the termination of employment and can include:
- Outstanding wages.
- Payments in lieu of notice.
- Accrued annual leave accruals.
- Accrued long service leave.
- Unused rostered days off.
- Unused TOIL accrued.
- Redundancy payment.
Termination payments and their uncertainties are a source of several payroll errors. As this document is reviewed, these topics will be expanded on, and additional information will be added. If you would like to receive more information on termination and redundancy payments, please send your request to enquiries@myabbs.com.au.