Chapter 1: Understanding what to pay your employee and why 4. Chapter 2: Ensuring your employee receives the correct pay 8

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2 Chapter 1: Understanding what to pay your employee and why 4 Awards/agreements/Industrial Instruments - is your employee bound by one of these?... Who to contact if you need further assistance Chapter 2: Ensuring your employee receives the correct pay 8 Paperwork you need to ensure your employee is set up correctly... Checklist for New Starters Chapter 3: Superannuation ins and outs 11 What is superable and why... So you haven t met your obligations what happens now Chapter 4: Your employees deserve a break but who gets leave and how much 15 Employee leave entitlements summary table... More leave what about cashing out annual leave and additional annual leave purchases Chapter 5: Your employee s payslip and payment summary 21 What goes on the payslip What goes on the payment summary What does it all mean to the ATO Chapter 6: When the employment relationship ends 24 Why has employment ceased and what payments is the employee entitled to Tax treatment of termination payments Chapter 7: So you ve paid your employees what about the ATO and state revenue offices 28 What does the ATO want from you... What the States and Territories want from you Chapter 8: Reporting dates and record keeping 31 Reporting Calendar... 31

3 Introduction Employing staff brings with it responsibility and significant consequences in terms of productivity, morale and financial risk if you get it wrong. Every organisation has its payroll peculiarities, however there are a base set of requirements which are covered in this ebook. Some payroll regulations are governed by federal legislation and some governed by state and territory legislation. Those covered by the states and territories are rarely standardised. We believe it is impossible for anyone responsible for the payroll function to have all the answers to ever changing payroll regulations in Australia. Payroll isn t just about compliance. However keeping up to date with your obligations will help ensure your employee s remain engaged and that s good for business. A more productive workforce with high retention who are aligned to corporate strategy. In this ebook we cover off what your employment obligations are so you can steer clear of the significant fines handed down by Fair Work and state and federal taxation offices, as well as enjoy the business benefits that come with a happy workforce. 4

4 Awards/Agreements/Industrial Instruments is your employee bound by one of these? Understanding what to pay your employee and why When a business decides to employ staff, they generally have a predetermined role and duties that they would like their employees to perform. They then determine the terms and conditions of employment and proceed to offer them to the successful applicant. Now, in most cases, it is not the responsibility of payroll staff to determine these terms and conditions of employment, however, it IS the responsibility of payroll to ensure that they understand and are able to interpret and apply these terms and conditions. Overview what is your employee bound by: National Employment Standards (NES) = are the minimum entitlements that apply to all employees, including employees who were previously award/agreement-free Modern Awards First full pay period on or after 1 January 2010 Transitional Arrangements For new rates, loadings and penalties on or after 1 July 2010 until full modern award comes into effect on 1 July 2014 Pre-reform Awards If no modern award exists, the NAPSA continues to apply until a modern award comes into operation, or until 1 January whichever occurs forst 5

5 The National Employment Standards The National Employment Standards (NES) provide minimum conditions for the majority of Australian workers from 1 January They comprise 10 legislated employment conditions covering essential conditions such as maximum weekly hours of work, leave, public holidays, notice of termination and redundancy pay and the right to request flexible working arrangements. Understanding what to pay your employee and why Modern awards and NES Modern awards apply to national system employees in a particular industry or occupation and together with 10 National Employment Standards, modern awards make up a safety net for employees in the national system. The minimum entitlements of the NES override any provision in a modern award that is less favourable than the NES which basically means that modern awards and enterprise agreements are allowed to include terms that are in addition to or related to the application of the NES, provided the terms are not detrimental to an employee compared to the NES. Modern awards replace awards and NAPSAs While modern awards commenced on 1 January 2010, many contain transitional arrangements which phase-in changes in wages, loadings and penalty rates over a five-year period. From 1 January 2010, the applicable modern award also replaced the pre-reform federal award or preserved state award (NAPSA), where relevant. A NAPSA is a Notional Agreement Preserving a State Award. NAPSAs were created under the previous WorkChoices system when what were previously State Awards, were brought into the Federal system using the device of a notional agreement. The process basically recognises that the industrial instrument was now a federal one. Then when Fair Work s modern award came into operation, the prior award ceased to apply to that employee, 6

6 If an employee is covered by a NAPSA but there was no modern award for that employee in place on 1 January 2010, the preserved state award continues to apply to that employee until a modern award comes into operation, or until 1 January whichever occurs first. Understanding what to pay your employee and why Transitional arrangements in most modern awards allow new minimum pay rates, loadings and penalties to be phased in over a period of four years commencing on 1 July 2010 until the full modern award rates apply on 1 July The transitional arrangements include a phasing schedule which allows wages, loadings and penalty rates which are higher or lower than pre-existing conditions to be progressively introduced. Where there was no existing loading or penalty applying under the existing instrument then the new loading or penalty in the modern award is also progressively introduced. This means you should not rely solely on the pay rates, loadings and penalty rates set out in modern awards because they may not currently apply in full. If a modern award contains a Schedule relating to transitional arrangements, you need to refer to the relevant pre-modern award as well as the modern award to calculate minimum rates of pay. Award/agreement-free employees The NES is the minimum entitlement that applies to all employees, including employees who were previously award/agreement-free. 7

7 Who to contact if you need further assistance: Fair Work Australia can generally assist with employment queries and also provide the following tools to determine under what award the employee falls. Understanding what to pay your employee and why Award Finder PayCheck Plus Pay Rates Calculator You can use Award Finder to search for the pre-modern award that was applicable before 1 January If you know the applicable premodern award but you re not sure which modern award applies, Award Finder will help you locate the right information Used to check pay rates for employees who are now covered by a modern award and were previously covered by (or could have been covered by) a pre-modern award or NAPSA You will need to know all relevant information on entitlements from the modern award and the pre-modern award for the Pay Rates Calculator to calculate the employee s base rate of pay and penalties. 8

8 Paperwork you need, to ensure the employee is paid correctly As a payroll professional, you may be aware that there are certain documents that must, by law, be issued when hiring an employee. Ensuring your employee receives the correct pay Now although the issuance of these documents may not necessarily be the responsibility of the payroll personnel, there are certain documents and information that payroll staff must have in order to process the employee s pay correctly in addition to ensuring compliance. Whether you use a manual or computerised payroll system, a New Starter summary or checklist is a great way to ensure you have covered most things required to process the employee s pay correctly. To complete the checklist, you will require the documents from your employee as well as internal information such as costing and position information. A signed copy of the employment contract a copy of the employment contract will provide the terms and conditions of employment (or at least make reference to an industrial instrument) by which the employee may be bound, such as an award or agreement. There may be further provisions in the contract of employment than that of the industrial instrument and those provisions may affect an employee s pay conditions. A completed Tax File Declaration - you will need a completed Tax File Declaration from your employee to allow you to apply the correct PAYG withholding to payments you make to your employee. A completed Standard superchoice (if applicable) form to employees who are eligible to choose a super fund Costing details (if applicable) Employee banking details 9

9 By working through a New Employee summary, you can feel comfortable and confident that you are capturing and processing all the information correctly and in the event that there is an error, this will most likely be picked up in the checking process. Ensuring your employee receives the correct pay A basic New Employee checklist is a handy tool that you can modify to meet your internal requirements most payroll systems have a process or workflow when setting up an employee, and you can streamline the information flow on your checklist to match the data flow of your software so that basically, when you print out your new starter records that have been input into the software, these details should be a computerised reflection of the manually completed checklist. The checklist can also be modified to meet system upgrades, internal controls as well as being used as a quick reference guide when looking for summary employee information. Checklist for New Starters EMPLOYEE PERSONNEL Details Employee Title/Surname/Given Name Address details Contact Details (Phone and ) Date of Birth Next of Kin Details EMPLOYEE TAX Details Tax File Number General Exemption (tax free threshold) Yes/No Resident Status HECS/HELP Extra tax/withholding Variation TFN Signed/Dated/Submitted EMPLOYEE SUPERANNUATION Details Superchoice issued/returned Default Fund YES/NO 10

10 Choice Fund Choice Fund Details Additional Employer contributions (salary sacrifice) Voluntary Contributions Ensuring your employee receives the correct pay EMPLOYMENT Details Full time/part time/casual/contract Work Pattern (if applicable) Base salary/hourly rate Loadings Award/Agreement YES/NO Name of Industrial Instrument Classification Allowances Deductions EMPLOYEE BANK Details Balance of Pay: BSB, Account Number EFT bank account 1: BSB, Account Number EFT bank account 2: BSB, Account Number EMPLOYEE LEAVE Details Annual Leave/Annual Leave Loading details LSL details Personal Leave details Other leave 11

11 What is superable? We all know that superannuation is currently payable at 9% - for most employees anyway however confusion often arises when trying to determine what earnings the 9% superannuation applies to. Superannuation ins and outs Superannuation is payable on Ordinary time earnings (OTE) which is generally what your employee earns for their ordinary hours of work. So for example, basic overtime is not part of your employee s ordinary hours of work and does not form part of OTE so is therefore not superable - as opposed to a shift allowance or loading which is paid as a loading on top of the ordinary hours worked and therefore superable. So for example, let s take a full-time employee who has worked from Monday to Friday and has completed their 38 weekly hours as per their award/agreement. They are then required to work on Saturday for 3 hours which is now considered overtime under the Award and payable at the rate of double time. On the other hand, there is a part-time employee who has worked on Tuesday for 5 hours, Wednesday for 5 hours and is now working on Saturday for 3 hours. The Saturday shift for the casual employee attracts a shift loading of 25% as per the Award and also forms part of the week s ordinary hours. 12

12 For simplicity purposes, we will use $10 per hour as the base rate of pay. A brief summary of their timesheet would look like this: Superannuation ins and outs So, as a basic rule of thumb, if the payment relates to ordinary hours of work, then superannuation is payable. However, there are exceptions to this rule and although a payment may be in respect of ordinary hours worked, it may be specifically excluded as OTE under legislation the most common payment being a lump sum payment in lieu of unused annual leave and unused long service leave made to the employee on termination of employment. The following summary may help remember, think about what the payment relates to in order to determine if it superable, then look at the legislation for exclusions. 13

13 Superannuation checklist what payments attract superannuation Superannuation ins and outs Payments to an employee in relation to... Salary or wages? Ordinary Time Earnings (OTE)? A simple overtime situation Yes No Overtime hours - agreement prevailing over award Yes No Agreement supplanting award removes distinction between ordinary hours Yes Yes and other hours No ordinary hours of work stipulated Yes Yes Casual employee - Shift-loadings Yes Yes Overtime payments Yes No Casual employee whose hours are paid at overtime rates due to a Yes No 'bandwidth' clause Piece-rates - no ordinary hours of work stipulated Yes Yes Overtime component of earnings based on 'hourly driving rate' formula Yes No stipulated in award Allowance by way of unconditional extra payment Yes Yes Expense allowance expected to be fully expended No No Danger allowance Yes Yes Retention allowance Yes Yes Hourly on-call allowance in relation to ordinary hours of work for doctors Yes Yes Reimbursement No No Petty cash No No Reimbursement of travel costs No No Payments for unfair dismissal No No Workers' compensation - Returned to work Yes Yes Not working No No Annual leave Yes Yes Termination payments - In lieu of notice Yes Yes Unused annual leave Yes No Performance bonus Yes Yes Bonus labelled as ex-gratia but in respect of ordinary hours of work Yes Yes Christmas bonus Yes Yes Bonus in respect of overtime only Yes No 14

14 So you haven t met your obligations what happens now Apart from the headache you will receive completing the Superannuation Guarantee Charge Statement, not meeting your superannuation obligations can be a costly expense for your organisation. Superannuation ins and outs The Superannuation Guarantee Charge Statement will need to be completed if you: don t pay enough super contributions (at least 9% of ordinary time earnings) for your employee - this is called a super guarantee shortfall don t pay super contributions by the quarterly cut-off date for payment don t pay super to your employee s chosen super fund - this is called a choice liability. It sounds simple enough but the snapshot below shows just one of the formulae used to calculate the Nominal Interest which is then used to calculate the charge on the Superannuation Guarantee Charge Statement. The ATO does assist by supplying an online calculation tool however it is still a very time-consuming and expensive administrative process. The best way to avoid all of this is to ensure you meet your obligations! 15

15 Your employees deserve a break but who gets leave and how much Employees accrue certain entitlements when it comes to having time off work they can take time off for annual leave, sick and personal reasons, parental leave, as well as community requirements such as jury service. The National Employment Standards (NES) cover the minimum entitlements for employees with respect to annual leave, personal/carer s leave, parental leave, community leave, public holiday leave and Long Service Leave. Awards and agreements may provide for any additional entitlements but not less than what is provided for under the NES. Entitlements will vary with the employees based on whether the employment is full time, part time, and casual. Employee leave entitlements summary table 16

16 Annual leave Under the NES, an employee (other than a casual) is entitled to: 4 weeks annual leave for each 12 months of service 5 weeks annual leave for some shift workers for each 12 months of service, Your employees deserve a break but who gets leave and how much and the entitlement accrues based on the employee s ordinary hours of work. Note - the annual leave entitlement above comes from the NES - an annual leave entitlement that comes from an award or agreement may be different, but cannot be less than the NES entitlement. When your employee goes on annual leave, you must pay annual leave at the employee s base rate of pay for their ordinary hours during the period of leave - this doesn t include separate entitlements such as incentive-based payments, bonuses, loadings, monetary allowances, overtime or penalty rates. However, it does include leave loading where provided for, and this loading must be paid when an employee takes leave and when they receive their unused annual leave entitlement on termination. Now, although it would be very rare to find an award or agreement that provides for a lesser annual leave entitlement than the NES, it is not as uncommon to find clauses in a modern award, agreement or contract expressly stating that accrued annual leave and/or annual leave loading is not payable on termination please ignore these clauses. Why? Because accrued entitlements on termination are provided for as part of the NES, which state that leave entitlements on termination must be paid at the rate that would have been paid if the employee had actually taken the leave. By not paying the leave loading, you would clearly be paying out the leave on termination at a rate lower than provided for by the NES 17

17 Personal/Carer s Leave Under the NES full time employees are entitled to 10 days paid personal leave (for sick and paid carer s leave) per year and the entitlement accumulates from year to year. Part-time employees receive a pro-rata entitlement to sick leave based on the number of hours they work. In each case, paid personal leave accumulates from year to year. Your employees deserve a break but who gets leave and how much But what circumstances are covered by Personal/Carer s leave? Well, the employee may take personal leave if they are ill or injured or, if they are required to care for an immediate family or household member who is ill or injured or if there is an emergency affecting the member. So, for example, if the employee has a child that needs to be picked up early from school, or has a partner that requires care they may use their accrued personal leave entitlement to cover these situations. Casual employees do not receive paid personal/carers leave but, like all other employees they are entitled to unpaid carer s leave - it is interesting to note that full time and part time employees can only access this entitlement once all their paid personal leave has been used up! Community Service Leave (Jury Service) Community service leave under the NES is unpaid, except in relation to jury service where an employee (except for a casual) is entitled to make-up pay for the first 10 days that the employee is absent for a period of jury service. Make-up pay is the difference between any jury service pay the employee receives (excluding any expense related allowances) and the employee s base rate of pay for the ordinary hours they would have worked 18

18 Parental Leave The NES provide that an employee with at least 12 months service is entitled to take up to 12 months unpaid parental leave employers may choose to fund parental leave however the provision for Parental Leave under the NES is unpaid. The Fair Work Act has extensive criteria as to what constitutes parental leave and when it can be taken but basically, parental leave is associated with the birth or adoption of a child. Your employees deserve a break but who gets leave and how much The Australian Government Paid Parental Leave scheme became an entitlement for working parents of children born or adopted on or after 1 January The scheme provides government-funded Parental Leave Pay at the National Minimum Wage for a maximum period of 18 weeks, and can be received before, after, or at the same time as existing entitlements such as annual leave, long service leave, and employer-funded paid parental leave. 19

19 Public Holiday Leave The Fair Work Act provides that en employee is entitled to be absent on a public holiday. Listed below are the statutory public holidays recognised in Australia under NES. Your employees deserve a break but who gets leave and how much Date 1-Jan 26-Jan TBA TBA 25-Apr TBA - State and Territory specific TBA - State and Territory specific 25-Dec 26-Dec Public Holiday New Year s Day Australia Day Good Friday Easter Monday ANZAC Day Queen s Birthday Labour Day Christmas Day Boxing Day Additional State and Territory specific public holidays as well as regional public holidays also apply to employees. So for example, the race that stops the nation The Melbourne Cup - is only a designated public holiday in Victoria. And in 2012, Tasmania has 9 designated public holidays whilst South Australia has 13. Fair Work Australia s website provides a list of public holidays in each State for the year and can also provide contact details for each State department who can also advise you of the public holidays applicable in their jurisdiction. Long Service Leave Under the NES, an employee is entitled to long service leave in accordance with their applicable pre-modernised award. Modern awards cannot include terms dealing with long service leave. Long service is generally State or Territory specific until such time when legislation has been developed to apply to all States and Territories the project has been in the pipeline for a while now however, as the legislation can vary significantly between jurisdictions, it is taking a while to complete. 20

20 More leave what about cashing out annual leave and additional annual leave purchases Your employees deserve a break but who gets leave and how much Annual Leave Cash Out Employees may wish to cash out part of their annual leave. Under the NES, employees who are covered by a modern award or enterprise agreement can only cash out annual leave if their award or agreement allows it. BUT if the award or agreement is silent with respect to cashing out annual leave, this means it is not allowed. Award/agreement free employees may also agree with their employer to cash out annual leave and in all circumstances where annual leave is cashed out, there are certain conditions under the Fair Work Act that need to be met. Personal Leave Cash Out - for employees covered by an award or agreement,- including transitional award or agreement based instruments - cashing out of paid personal / carer s leave (such as sick leave) is permitted if the award or agreement allows it. An employee not covered by an award or agreement is not able to cash out paid personal / carer s leave. Additional leave purchase Some employers allow for employees to purchase additional annual leave. A leave purchase scheme involves packaging additional leave whereby the employee reduces the number of hours worked over a year by purchasing specified amounts of annual leave in addition to their normal annual leave entitlement. The cost of purchasing the additional leave is then spread over the year so the employees periodic salary is reduced proportionately simply put, the employee banks some of their gross pay each period and then they are paid this banked money whilst on the additional leave. 21

21 What goes on the payslip Below is an example of a typical payslip showing the compulsory minimum requirements of what must appear on the employees payslips Your employee s payslip and payment summary 22

22 Your employee s payslip and payment summary Most employees are eager to receive and analyse their payslips and The Fair Work Act requires that employers must provide their employees with a payslip either in electronic form or hard copy within one working day of their pay day. Apart from meeting your legal obligations, ensuring that your employees receive their payslip in a timely manner promotes confidence in their perception of the payroll department as well as allowing any discrepancies to be identified and rectified as soon as possible as well as providing your employees the necessary documents at hand when managing their financial affairs without having to request copies at a later time. What goes on the payment summary 23

23 The Australian Tax Office provides the specifications and requirements with respect to an individual s payment summary. The payment summary is simply a summary of the payments made to the employee during a financial year and must be issued to your employees by July 14th of each year it summarises and categorises the payments in such a way so that the Australian Tax Office can assess the individual s income tax liability. Your employee s payslip and payment summary So what does it all mean to the ATO The ATO provides clear and distinct guidelines when producing an employee s payment summary. Let s look at the payment summary above for John Brown the Meter Reader. Now when John lodges his tax return, and without any other contributing factors, the amount of tax that has been withheld from John s annual earnings should result in no additional tax liability and hopefully, with any allowable work deductions, John may receive a refund! The ATO will check the data that John has lodged against the Annual Report that his employer lodges which contains the individual employee s personal and payment details and is due by August 14 each year. The allowances paid to the employee provide the ATO with an idea of what type of deductions an employee may be able to claim on their tax return clearly in John s case, it would be reasonable that he would be able to claim a deduction for say, specific footwear, that he may be required to wear when walking around reading the electricity meters, as well as union fees. Claiming a deduction for say, home office expenses, on the other hand, may very well trigger alarm bells at the ATO. 24

24 Why has employment ceased and what payments is the employee entitled to No one stays in the one job forever well certainly not many employees. When the employment relationship ends Employers will eventually deal with employees exiting the business for a number of reasons most commonly through resignation, redundancy or dismissal. The correct processing of payments owed to the employee on termination can become rather complex with variables such as the reason for termination, the nature and value of the termination payments and the length of service each requiring different tax treatments to be applied to the termination payments. Resignation When an employee resigns, they are entitled to payment for unused annual leave and unused long service leave if applicable as well as payments for unused personal leave if their agreements provide for such payments. Strange as it may seem, an employee has a right to resign without providing notice to the employer however although the Fair Work Act may not require any notice to be given by the employee, a modern award or enterprise agreement may include terms specifying the period of notice an employee must give in order to terminate employment. In addition, individual employment contracts may stipulate minimum notice periods. So what happens if your employee resigns without providing any minimum notice stipulated in their contract of employment is the employer permitted to withhold any monies owing to the employee on termination for failure to provide sufficient notice? The standard termination clause in modern awards usually provides that where an employee fails to give the required period of notice, an employer can deduct the difference between the required notice and the notice actually given by the employee from monies due on termination BUT the Fair Work Act provides that a terminated employee with a period of untaken annual leave must be paid what they would have been paid 25

25 if they had taken that period of leave and as this is covered by the NES, it cannot be excluded by any term in a modern award that may provide for a lesser benefit! Your best bet pay out the entitlements owing to the employee because any legal action taken by the employee may result in higher costs! Genuine Redundancy When the employment relationship ends There may be a number of reasons that an employer decides they are making their employee s job redundant - in smaller businesses, an employee s role may become redundant and be replaced with the introduction of new technology and then as the business grows, further redundancies may be necessary due to a restructure of the organisation. Now apart from the legal procedural requirements when an employee s role is made redundant such as offering the employee another position within the organisation if applicable the NES requires the following minimum payments be made in the event of redundancy: Notice period Period Employee s period of continuous service with the employer at the end of the day the notice Period is given 1 Not more than 1 year 1 week 2 More than 1 year but not more than 3 years 2 weeks 3 More than 3 years but not more than 5 years 3 weeks 4 More than 5 years 4 weeks *An employee with a minimum 2 years service aged over 45 receives an additional week 26

26 When the employment relationship ends Redundancy Pay Redundancy pay period Employee s period of continuous service with the employer on termination At least 1 year but less than 2 years At least 2 years but less than 3 years At least 3 years but less than 4 years At least 4 years but less than 5 years At least 5 years but less than 6 years At least 6 years but less than 7 years At least 7 years but less than 8 years At least 8 years but less than 9 years At least 9 years but less than 10 years At least 10 years Redundancy pay period 4 weeks 6 weeks 7 weeks 8 weeks 10 weeks 11 weeks 13 weeks 14 weeks 16 weeks 12 weeks Certain employees are generally not eligible for redundancy payments including employees with less than 12 months continuous service, apprentices, casual employees, and employees who work in an industry such as construction where industry specific redundancy schemes exist in the employee s agreement. Dismissal Basically, an employer must have a valid reason for dismissing an employee, however the reasons really have nothing to do with the payroll process. What payroll personnel should be aware of are the employee entitlements or loss of entitlements - with respect to the employee s contract of employment. Tax treatment of termination payments Depending on the reason for termination, there are strict legal requirements on how to tax any payments the employee may receive on termination such as their unused leave, redundancy pay, and compensation for unfair dismissal. 27

27 For example, the tax treatment of just one unused leave paid on termination can have 3 possible tax implications based on whether there is a pre August 1993 component, a post August 1993 component and whether it is in the event of a voluntary resignation or genuine redundancy! The tax treatment of unused long service leave is slightly more complex than that of unused annual leave on termination. When the employment relationship ends And how to tax the redundancy payments mentioned above? Well, that depends on their age too. What about other payments such as Employment Termination Payments (ETP s)? Well some are taxed at a fixed rate, such as unused RDO s, whereas others may have a tax free component such as notice periods and severance in the event of a genuine redundancy. And what about compensation for unfair dismissal? Well that depends on whether the payment represents compensation for personal injury, compensation for loss of job or damages. Part of the payment may be considered capital in nature and not subject to tax. Not to mention the complexities of processing and taxing a payment in the unfortunate event of an employee s death. The ATO website provides copious amounts of legislation and instructions regarding the tax treatment of payments made on termination which would assist payroll staff when taxing these payments however as there as so many variables, it would be wise to undertake a course on termination payments or join an organisation who can assist it is more than worth the cost to understand, discuss, and feel confident that everything has been processed correctly. Especially if you compare it to the cost of getting it wrong!! 28

28 What does the ATO want from you? So you ve paid your employees what about the ATO and the state revenue offices Simply put, the ATO requires employers to withhold an amount from the employees pay as per the ATO s prescribed rates and regulations and the employees tax declaration and then the ATO would like you to send the money that has been withheld from the employees pay sent to them. At the end of the year, the money that has been withheld and sent to the ATO should be the same value as the amount on the employers Annual Report which is due to the ATO by August 14th of each year. Then when the employee submits their tax return, the ATO electronically matches the information that has been submitted by each party against the records they have and hopefully everything should match. Taxing the employee correctly The ATO provides extensive information in relation to how to apply the correct tax treatment to payments made to employees. There are tax tables for regular payments such as weekly, fortnightly and monthly as well as irregular payments (such as bonuses and backpays), termination payments and additional withholding amounts for education related fees such as HELP and SFSS. In addition to applying the correct tax treatment to employee s salaries and wages, the ATO also requires special tax treatment of specific allowances some allowances are subject to PAYG withholding and others are not. Some may only partly be subject to PAYG withholding. Once you have withheld the amounts from the employees, you will need to report and pay these amounts to the ATO. An employer will be classified as either a small, medium or large withholder and will be required to report and pay to the ATO the PAYG amounts withheld from its employees either quarterly, monthly or weekly depending on the classification. The driver for this classification is the amount of PAYG the employer withholds annually. 29

29 So you ve paid your employees what about the ATO and the state revenue offices The complexities of the taxation system can cause many employers and employees a small to intense headache. It is important that employers understand these complexities and there are resources to assist employers to meet their PAYG withholding obligations. Apart from the ATO, there are professional organisations that provide payroll advice and services such as health/ integrity checks and audits. Remember.. Penalty for failing to withhold or pay a withheld amount as required If you are required to withhold an amount from a payment made under a pay as you go (PAYG) withholding obligation and you fail to withhold the required amount, you are liable to a penalty. The penalty amount is equal to the amount that you should have withheld from the payment. What do the State and Territory Revenue offices want from you Well, they want their share too.. the difference is though, that, unlike the Australian Taxation Office who tax the employee s salaries and wages, the Revenue offices impose a tax on the wages the employer has paid. ATO taxes the employee on salaries and wages paid by the employer (PAYG) State and Territory revenue offices taxes the employer on salaries and wages paid 30

30 So you ve paid your employees what about the ATO and the state revenue offices It is a common misconception that salaries and wages (including allowances, superannuation, fringe benefits etc) are the wages that are subject to payroll tax this is not the case. A living away from home allowance is commonly misinterpreted as an accommodation allowance and declared (or not) as salaries and wages. Workers compensation payments are considered salaries and wages in the eyes of the ATO however they are not salaries and wages paid by the employer (they are paid by the insurer) so they are not subject to payroll tax even though they may be subject to PAYG withholding. Now, although each state and territory has different tax rates, thresholds and some other minor differences, the harmonisation process effective 1 July 2009 basically see identical legislation being applicable in each jurisdiction. The calculation for payroll tax can become rather complex when factoring in grouping provisions (whereby a company may be considered part of a group based on certain criteria resulting in the only one member of the group being entitled to claim the threshold), exempt wages such as workers compensation and government funded parental leave payments, as well as any other state/territory specific rebate schemes. In addition to the monthly returns, an employer is required to lodge an annual return. The information contained in the annual returns are used for many purposes ranging from cross checking the financial data declared with other state authorities (eg Workers Compensation governing authorities) as well as projecting future wages and liabilities. 31

31 Jul- 12 Aug- 12 Sep- 12 Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Oct- 12 Nov- 12 Dec- 12 Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Jan- 13 Feb- 13 Mar- 13 Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Apr- 13 May- 13 Jun- 13 Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Monday Tuesday WednesdayThursday Friday Saturday Sunday Key payroll dates *if the 7th falls on a weekend or public holiday, the next business day is the due date PRT monthly lodgement due - 7th monthly. PAYG annual reports to the ATO - 14th August Puarterly SuperannuaQon contribuqons due - 28th January, April, July and October Payroll Tax Annual Return - due 21st July Payment summarries to be issued to employees by 14th July

32 Tracy Angwin is a veteran of the payroll market place. Her weekly newsletter Payroll News is a must read for anyone responsible for payroll in Australia. Her passion and commitment to improve the services offered to payroll professionals was the driving force behind her decision to create the Australian Payroll Association in Since then she has continued to provide membership services including payroll advice and guidance, training, networking and skills designed to meet the needs of frontline payroll professionals. Prior to founding Australian Payroll Association, Tracy held senior management roles at Sage Micropay and Northgate Arinso. Tracy and her husband and two small children live in Sydney. You can contact Tracy at tracy@austpayroll.com.au. For more information on Australian Payroll Association visit

33 In the preparation of this ebook, every effort has been made to offer the most current, correct and clearly understandable information available. Nonetheless inadvertent errors can occur as payroll legislation is constantly changing. The information in this text is current as at August Australian Payroll Association Pty Ltd, its directors, employees, agents and representatives accept no responsibility for any loss (including without limitation, liability in negligence) for all expenses, losses, damages and costs the reader might incur as a result of relying on the general information provided in this document. Copyright and proprietary information of Australian Payroll Association Pty Ltd. All rights reserved. No part of this document may be reproduced or copied in any form or by any means without the written permission of Australian Payroll Association Pty Ltd.