Organisations with good payroll systems and processes can afford to relax. Most organisations, in our experience, unfortunately do not fall into this category - particularly at the SME end of the business spectrum.

The Australian taxation system is one of the most complex on the planet.  The changing rules, requirements and obligations around the taxation of bonuses, commissions, redundancy, terminations and the treatment of salary packaging and super, are a significant compliance challenge for payroll officers.

Fortunately, until now, the annual reporting of employees’ earnings has meant that any imperfections throughout the year have been able to be “hidden” in the aggregate amounts reported at the end of the year.  With the full implementation of STP, this will no longer be the case.

Organisations with knowledge or skill gaps in their payroll team or with sub-optimal payroll processes, systems or software are vulnerable - as details reported to the ATO will highlight their lack of full compliance and leave these organisations open to ATO scrutiny and ultimately tax audit.

Even if a tax audit only uncovers minor infringements, the real cost of the audit is the disruption to normal operations resulting from providing details of transactions and answering the multitude of questions that follow, which can consume a significant amount of the Financial Controller’s and other finance executives’ time.  Audits also may uncover tax imperfections in other areas of the organisation, potentially opening a Pandora’s Box of issues in FBT, super compliance, depreciation or company tax obligations.  And that’s the ‘least worst’ outcome.

 
Audits may also uncover significant compliance issues,  giving rise to penalties, fines and recovery of under-taxed amounts.

All in all, risk management suggests that Financial Controllers should insulate their businesses from these new compliance threats.  How can this be done? 

Firstly, ensure that your payroll staff are fully trained in payroll matters.  Even if you only have one complex termination a year, make sure it is correct.  There may be an advantage in initiating your own external audit of the payroll function from time to time, to give you reassurance that you have the right people in the right seats. 

Secondly make sure that your software provider is STP compliant – which is not an easy task for software providers given that the ATO is still working out the fine details of the new STP requirements.  Nevertheless, don’t expect that the ATO’s STP implementation team will be in sync with those defining requirements. Fortunately, the ATO has said that it will not prosecute infringements in the first year.

Be prepared to pay more to be compliant.  Your software or service provider may force you to transmit data through a specific Digital Service Provider (DSP) to the ATO.  Even if they don’t, rest assured DSPs will need to jump through significant hoops with the ATO to be certified.

Finally, review your internal processes and systems so that you achieve compliance and efficiency.  While the focus of STP is tax obligations, it is clear that the Fair Work Ombudsman is also vigilant in ensuring award compliance.

If all of this looks like too much trouble, consider outsourcing your payroll – an easy solution for ensuring ongoing compliance with evolving legislation.