Your Essential Guide to Payroll Compliance

Payroll compliance in Australia has come into sharper focus over the past few years, with a number of high-profile wage theft scandals reported in the media and the subsequent negative fallout.

This highlights an important ‘blind spot’ that people can let pass due to employers' failure to keep up with payroll compliance leading to employees not receiving their correct entitlements.

As we will see in this blog, failure to abide by payroll compliance can be serious and have far-reaching consequences for employers and their businesses. And the financial shortfalls are stressful and unfair to employees. We will explore the overall understanding of payroll compliance, the requirements, some of the common pitfalls, and ways of leveraging technology to help employers navigate their obligations.

Understanding Payroll Compliance

What Is Payroll Compliance?

Payroll compliance is about the employer abiding by the laws, practices and regulations that surround paying their employees.

The employer’s obligation is to ensure that their employees receive at least the minimum wages they are entitled to according to the law. With ongoing changes to legislation such as the Fair Work Act, this is something that employers can sometimes struggle to be on top of. Still, if wages are not paid correctly, there is a risk of it being seen as employer malice, and this can garner serious consequences.

Employers that are found to be intentionally stealing from their employees may be prosecuted and sentenced to jail for a duration of up to 10 years. There are also other negative consequences, including the effect on employee morale and turnover and business reputation on social media, with its subsequent effects on client retention and new employee recruitment.

Compliance Requirements for Payroll

The major compliance requirements for payroll in Australia include paying employees at least their minimum pay rates, paying employees their superannuation entitlements under the superannuation guarantee, using Single Touch Payroll (STP), compliant software, and reporting on payroll tax.

Minimum pay rates refer to the gross pay paid to an employee. This varies according to the awards applicable to different industries and occupations, as well as the employee’s age, type of employment, and other contractual conditions. For employees not covered by a registered agreement or award, the national minimum wage, as of mid-2023, is $882/80 per week or $23.23 per hour. It is vital that wages (including overtime and penalty rates as well as leave entitlements) are calculated accurately.

The national superannuation guarantee, as of early 2024, is currently 11% of employees’ ordinary time earnings, and these contributions must also be paid to employees’ nominated superannuation accounts on, or before, the specified payment dates.

Single Touch Payroll is an initiative by the Australian Government to help streamline employer reporting to government agencies, requiring timely record-keeping. It is now mandatory for employers of all-sized businesses to report on their employees’ payroll information every time they are paid.

Payroll tax varies between states and territories. It is calculated on the total taxable wages across Australia that exceed the threshold amount applicable to their state or territory. Maximum annual deduction entitlements vary as well according to where the employer is based. It is important that these tax submissions are made on time.

Strategies for Streamlining Payroll Compliance

Common Payroll Compliance Pitfalls

Below are some of the most common errors regarding payroll and compliance, along with ways to avoid them:

• Wrongly classifying employees—You need to accurately differentiate contractors from full-time, part-time, and casual staff. This may require scheduling regular employee classification audits.
• Incorrect payments for overtime and penalty rates—These vary between industries and can lead to employee grievances and legal risks. Be sure to regularly check that the rates you pay remain accurate according to minimum award rates outlined within relevant awards or agreements. Alternatively, you can use automated payroll systems to calculate these accurately.
• Faulty record-keeping—Inaccurate records lead to incorrect payments, which can lead to employee grievances and costly legal action. To help prevent errors, it is best to move away from manual record-keeping and instead implement automated time and attendance systems.
• Mismanaging Payroll Tax—Missing critical reporting or tax payment deadlines or getting payroll reporting incorrect can carry severe financial consequences. We have a tool that can estimate your payroll tax based on your payroll data.
• Being unaware of payroll-related laws—Ignoring payroll-related laws and regulations (or changes to them) can trigger significant financial penalties and legal risks. You must align your payroll practices with these laws and immediately make any necessary updates.

Many employers simply find it too difficult to keep up with all their obligations. But as you will see below, technological tools can do much of the heavy lifting in maintaining compliance in payroll.

Leveraging Technology for Compliance

Modern payroll systems can simplify the task of compliance requirements by streamlining the processes. Using such technology can make an enormous difference in the efficiency and accuracy of your payroll processes and in meeting your compliance obligations.

Some of the helpful functionalities to look for include:

Position creation and testing—to easily create new positions under the correct award and the ability to test the pay rules of new roles with graphical representation.

Automated and fully supported compliance—the ability to automate various pay rates, deductions, allowances, and other conditions related to the award rate. You also receive updates to award rates when legislation changes and assistance in making required changes.

Seamless rate rise changes—the ability to easily schedule and update your awards and agreements to the correct wage.

Fostering a Culture of Compliance

Ultimately, all employers need to foster a culture of compliance. This involves a mindset of proactively cultivating payroll compliance rather than regarding payroll as a perpetually repetitive, unchanging task. 

By implementing processes around this and utilising appropriate payroll compliant systems, it will become easier for employers to navigate compliance, prevent financial and legal penalties and maintain fairness for their employees.

Elevate Your Payroll Compliance Strategy with foundU 

At foundU, we encourage you to review your payroll processes, seek professional advice, and explore payroll solutions to enhance your payroll compliance.