Navigating Payroll Obligations in Australia: A Comprehensive Guide

With the silly season over, and everyone (slowly) getting back to work after long, lazy summer days, it’s a good time to take an overview of how your business is performing and to ensure you are fully compliant when it comes to employees and payroll. ‘Now’ could be the perfect time to revisit your award and ensure nothing has changed in your obligations towards your staff.

Managing payroll in Australia can sometimes be complex and is always changing, but it’s something you must always stay on top of. Single Touch Payroll or STP, for example, is an initiative over the past couple of years, that requires businesses to send employee payroll information to the ATO, such as wages, PAYG and superannuation, at the same time as they complete their pay run (whether it be weekly, fortnightly or monthly). This is just one example of how the ATO is consistently adding to and changing legislation. Whether you are an SME, sole trader or larger organisation, it’s important to know you are fully compliant in all areas of managing your employees and contractors, as well as their rates and entitlements. Let’s look at the core areas you need to be aware of as an employer and/or growing business.

Awards

With over 100 industry awards in Australia, they are an integral part of the industrial relations system. They set the minimum employment conditions and pay rates for specific industries and occupations. Understanding and complying with relevant awards is crucial to ensure your employees are paid correctly and fairly. Awards are often updated, so it’s essential for business owners to regularly check they are paying the correct rates. It may even be worth setting yourself a calendar reminder every six months to ensure your compliance, otherwise, you could end up with a hefty cost if you need to ‘backpay’ any difference. You can also subscribe to Fair Work Australia and receive updates to your specific award straight to your email.

Key points regarding awards include:

Make sure you know your award! Different awards apply to various industries and professions, so it's essential to identify which award(s) are relevant to your business.

Every award is different. Awards specify minimum pay rates, including hourly rates, overtime, penalty rates for weekends and public holidays, as well as allowances for specific tasks or conditions. Awards also outline provisions for annual leave, sick leave, and other types of paid and unpaid leave that employees are entitled to, and again, this can vary significantly, or subtly, with such a large number of awards to consider.

You must conform to the various working conditions, including hours of work, meal breaks and shift arrangements, set out in each award.

Remember to maintain accurate and detailed records of all your employees and be able to show your compliance with the correct award, if required.

Contractor vs. Employee

If you are a growing business, it can sometimes be advantageous to use contractors for various tasks and projects rather than taking on a new employee, but distinguishing between contractors and employees is crucial, as they have different rights, entitlements and tax obligations. Misclassifying workers can end up being a bit of a minefield, and if in any doubt, the team at WestBAS are here to help.

Key points for differentiating contractors from employees include:

Does the contractor have clear control and independence in completing the task? Employees typically work under the direction and control of the employer, while contractors maintain more independence in how they perform their work.

Employees have income tax withheld and are entitled to superannuation contributions, while contractors are responsible for their own tax. It’s important to note here, that employers

A written contract and/or agreement from the business should outline the nature of the working relationship, including payment arrangements, the contractor’s insurance obligations and whether sub-contractors are acceptable to complete tasks.

One recommendation we would strongly encourage, when taking on contractors, is to check with your insurance advisor that you, and your contractors, have the correct insurance and worker’s compensation coverage.

Payroll Tax

Always controversial, Payroll tax in Australia is a state-based tax imposed on employers for the wages and salaries paid to their employees. The rules and thresholds for payroll tax can vary from state to state, so it's essential to be aware of your specific state's requirements.

Key points regarding payroll tax include:

Each state and territory in Australia sets its payroll tax threshold which determines when an employer becomes liable to pay payroll tax. Businesses with annual taxable wages below the threshold are generally exempt. In Western Australia, businesses paying total taxable wages of more than $1 million per annum are liable for payroll tax. It is important to note that the wages ‘bill’ used for Payroll Tax calculations includes Superannuation, Fringe Benefits Tax, Contractors and commissions and bonuses.

States will generally have deductions and exemptions available, and each state will calculate payroll tax differently, so make sure you have good advice and do your research around this.

Once eligible, employers must register for payroll tax in their relevant state, lodge regular returns and make payments within the specified deadlines.

Superannuation

Superannuation, or ‘super’ was first passed in the early 1990s as the retirement savings system in Australia, designed to help workers save for their retirement. It took a while for business owners to fully understand the concept and to make sure they were fully compliant. Thirty years on and employers now fully understand that required contributions to their employees' chosen superannuation funds, are in addition to their annual salary. In 2023, the current superannuation rate is 11% of gross wages and is scheduled to increase to 12% by 2025.

Some interesting points on superannuation you may not know:

Employees have the option to choose their preferred superannuation fund, but you

Reporting and Payment – Compliance is changing around payment of superannuation. Currently, businesses can pay their super every three months, however, as with STP, steps are being taken to encourage business owners to pay superannuation with their usual pay cycle.

Employees can make extra super contributions. Employees can salary sacrifice some of their wages to grow their super faster. It’s important to recommend they get professional financial advice when deciding on salary sacrifice. These days, accounting software is set up to accommodate this, but employers need to report this correctly, as these employee contributions are taxed differently.

Additionally, employers can choose to pay a higher rate of superannuation, as an incentive for staff. Of course, this needs to be correctly reported to the ATO and may have some tax implications.

Not all payments qualify for super. Super is paid on ‘ordinary earnings’, salary and wages. Generally speaking, super is not paid on overtime expenses and travel allowance - but double check with your award on this. It’s important to be aware of this, as it can save a lot of expense for your business. It’s worth noting, that if your employee is lucky enough to be paid $62,270 per quarter, there is a cap on their super at this point. As well as this, super is not paid on worker’s compensation payments in WA. However, as workers compensation is controlled by each state, there are different rules regarding super for workers compensation insurance claims across Australia.

As you can see, navigating payroll obligations in Australia requires a comprehensive understanding of awards, payroll tax, superannuation, and worker classification. Ensuring compliance with these obligations is essential for both legal reasons and maintaining a positive relationship with your employees. Always seek professional advice and stay updated with changes in Australian employment laws to remain compliant and avoid potential issues.

The team at WestBAS are happy to support you with any questions you may have around your payroll obligations and compliances. Feel free to reach out if you need any advice. And may your 2024 be prosperous and successful.