In recent times, some prominent business owners have paid the penalty for shortcomings in their payroll. As a small business, your business and payroll will be smaller and simpler. We look at 5 ways you can keep ahead of the changes, support your employees and perform a payroll audit on your payrates and payroll processes.
1. The Timing of Paying Your Super Contributions has Changed
Your Future, Your Super (YFYS) is a set of reforms designed to improve the superannuation industry. From 1 November, 2021, super choice will change.
Where a new employee does not choose a super fund, you will need to contact the ATO to see if your employee has an existing super fund, known as a ‘stapled super fund’. If they do, you must pay their contributions into this super account. If they don’t, you must register the employee with your default super fund and pay their contributions into the new super account.
A ‘stapled’ super account is one that follows the member from job to job. The aim of stapling is to reduce the number of people holding or creating multiple super accounts, especially when they change jobs.
Pay your super contributions early as the law states that super contributions must have cleared the super fund’s bank account to qualify as paid. It can take 2 weeks for some big super funds to clear the funds.
Super Guarantee contributions not paid by the 28th day after the quarter end are not tax deductible, must be reported and paid to the ATO with interest and an admin fee. So keeping up with your super guarantee contributions has become just that bit more important for your tax planning.
2. Check Out How Your Super Fund Compares
From 1 September, 2021, the ATO will provide a reliable source to help people choose a high-performing and/or low-cost super fund product that meets their needs. This information is based on an annual performance test of super funds to ensure they are focused on improving their investment returns and lowering their fees.
You can view a personalised version on your myGov account or all super funds can be found at https://www.ato.gov.au/YourSuper-Comparison-Tool/.
So hop onto the site and see how your super fund compares. This is not financial advice and the ATO recommends talking with a financial adviser, such as your small business accountant.
3. Check the Super Guarantee Contributions (SGC) calculated for your Payroll
SGC rose from 9.5% to 10% of ordinary time earnings (OTE) for payroll payments made on or after 1 July, 2021.
You may say “but my payroll software handles all that”. It may but but cloud accounting and other accounting packages handle handle the calculation based on pay components you flag as subject to super. The definition of OTE has changed over time, inevitably including more pay components.
It’s a good time to check the pay components subject to super in your payroll software are correct. Check the ATO definition at https://www.ato.gov.au/business/super-for-employers/paying-super-contributions/how-much-super-to-pay/list-of-payments-that-are-ordinary-time-earnings/
4. Single Touch Payroll has Changed
Up to 30 June, 2021, small businesses have not been required to report closely held employees (business owners, directors, beneficiaries and their immediate family) under Single Touch Payroll (STP) provisions. But from 1 July, you must include closely held employees in your STP reporting at least quarterly.
The remuneration of closely held employees normally depends on the profit for the year and it cannot therefore be determined accurately until the year end. The ATO allows an estimate of the remuneration of closely held employees to be reported under STP.
As STP must be finalised within a month after the year end, businesses must move quickly after the year end to determine the final renumeration for closely held employees.
STP2 comes into effect from 1 January, 2022. STP2 will report additional components of your pay runs and information currently reported on TFN declarations. It will report a substantial part of your payroll.
The employer’s guide can be found at https://www.ato.gov.au/Business/Single-Touch-Payroll/In-detail/Single-Touch-Payroll-Phase-2-employer-reporting-guidelines/?page=1#How_to_report_employment_and_taxation_information_through_STP_Phase_2
5. Support your Employees through your Payroll
Here are some of the popular ways you can help your employee through payroll with little or no cost:
- a. Pre-tax super salary sacrifice. An employee may wish to increase their super contributions above 10% by reducing their cash salary. If calculated correctly, this is cost neutral to the employer. The most common is super salary sacrifice where the employee reduces their cash salary but increases their contributions to super. It has the added advantage of reducing tax. There are other options depending on your circumstances that also offer tax savings.
- b. Post-tax super deductions. An employee may wish to pay non-deductible super contributions (possibly to claim the Government co-contribution) by reducing their net pay.
The above are 5 simple steps to keep your payroll on track. Your employees are important to your business so consider what you can do to support them.
This is a brief summary intended for guidance. Please contact a suitable professional and discuss your specific circumstances before acting on anything contained in this document.