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Ah the payroll system, a system which is once again a hot topic everyone is talking about. It is one of the most widely used systems around the globe which plays a critical role to the functioning of a business. It is also one of the oldest business systems which can be traced back to 7000BC, in fact the first known system similar to ours is the Greek system. This was done by the Athenians who developed a way to keep track of their pay records for different employees by carving payment details into stone.

You may be wondering why I’m mentioning the ancient Greeks, well, the payroll system has had thousands of years to evolve and one would think since the rise of technology in the past 2 decades would enable us to create the ultimate payroll system. Unfortunately, that’s not the case and many businesses are facing compliance issues from errors whilst using todays systems.

 

There are many complexities in today’s payroll system, one of the many variables includes determining the correct base to apply superannuation. Another is how to treat the many parts to a termination of payment and this can include variables such as whether the persons employment position is redundant which means the employee would be entitled to a concessional tax treatment or the employee is eligible for overtime and penalty rates. These variables are confusing which makes it difficult for many businesses to incorporate, increasing risk in compliance issues.

RSM Associate director Jane Wood citing the research from the Australian Payroll Association said that many businesses are starting to outsource their payroll services, however 67.5% are still managing their payroll in house, leaving them open for tax and legal compliance risks. There is an obvious problem here… small to medium sized businesses may not be able to afford offloading their payroll duties to another company. Hold on - surely there’s more to it than that, right? I mean smaller to medium sized business have existed in the past without issues so why all of a sudden are there more payroll errors and issues?

One reasonable explanation is the constant changing of requirements in employee, tax and payroll systems. Companies providing payroll services are on top of changes in regulations and rules etc, however regular companies who are still completing payroll duties in-house, mainly the smaller businesses are unaware and unable to implement those changes.

The Australian Taxation office has implemented one way in which to combat this issue. They have introduced the Single Touch Payroll System which is compulsory for all business small or large to be using from 1 July 2019. This system reports their employees’ payments, tax and superannuation information to the ATO from their payroll system each time they pay their employees. This is a large step in the right direction as the ATO will be able to calculate whether the payments are correct and will enable the employer to correct any issues in a more frequent and timely manner instead of being hit by large bills every month or quarter depending on their reporting requirements.

One of the larger scandals include Wesfarmers, who have revealed a $15 million payroll error. Around half of the amount was in regards to super to which the head of Wesfarmers industrial division, David Baxby wrote “These were inadvertent errors but they are deeply regrettable”. So, it seems as if it is not the systems which are at fault but rather human error or neglect.

Everybody makes mistakes, it is part of life, however large companies have systems and departments in place which are there to make sure errors do not occur, so there are no excuses. Where do we go from here? As we can see errors can happen in small or large businesses regardless of how advanced their payroll systems are and it seems the only way to stay on top of things is by using the most up to date payroll system which need work on creating more safeguards whilst also staying on top of changing rules and regulations. With that said I am fascinated to observe the issues which arise from the compulsory use of STP by all companies over the coming months.

outsourcing payroll

https://www.payroll-solutions.co.uk/payroll/a-history-of-payroll/

https://www.mybusiness.com.au/management/6297-businesses-urged-to-review-payroll-systems?utm_source=MyBusiness&utm_campaign=16_10_19&utm_medium=email&utm_content=2

https://employmenthero.com/blog/payroll/payroll-scandals-australia/

https://employmenthero.com/blog/payroll/avoid-payroll-errors-australia/

 https://www.theguardian.com/australia-news/2019/oct/01/wesfarmers-workers-underpaid-15m-as-company-blames-inadvertent-errors