Posts tagged ‘australian payroll’

March 25, 2014

Best Practice for Relying on Fair Work Ombudsman Advice


I came across a press release a little while back from Senator Eric Abetz, Minister for Employment titled Small Business Able to Rely on Fair Work Ombudsman Advice. The opening sentence of this press release reads:

“In a win for small business, the Minister for Employment Senator Eric Abetz today announced that small business operators will now be able to rely on advice from the Fair Work Ombudsman without the fear of prosecution, should the information be incorrect.”

My thought on this is simply… How Ridiculous!

1. Ridiculous that you can’t get correct advice from Fair Work in the first place.
2. Ridiculous that the press release leads small business operators to think that they won’t be prosecuted for following incorrect advice, because Fair Work are reluctant to put their advice in writing, which makes it very hard to build a case on the advice they actually gave you at the time.
3. Ridiculous that a statement like this will lead small business to unrealistically expect that they can prove the content of a phone call if a case was actually made against them by Fair Work.
4. Ridiculous because my experience has shown me that you need to ask the right questions, to get the right advice from not only Fair Work, but of all payroll and employer association advice lines.

My advice to anyone seeking information from Fair Work, that involves a compliance issue that you could be later prosecuted or fined for (which in reality is very question you would ever have of the Fair Work Ombudsman), is that you get that information in writing as it may ultimately become evidence that you require to defend your actions.

To ensure you don’t venture into the grey area on seeking advice, it would be wise to follow these four best practices when seeking legislative advice:

1. Do your research – don’t go in blind.  Before you make an enquiry with Fair Work, investigate your question as much as you can via the Fair Work website and Google to understand the anomalies that may exist in relation to your enquiry, because most HR, Payroll and Industrial Relations questions rely on understanding multiple pieces of legislation and awards, and more often than not multiple clauses and sub clauses of each of these to reach your final definitive answer.

My own experience with many self-proclaimed payroll “subject matter experts” and having made more phone calls to Fair Work than I can remember, has proven time and again that misinformation is rife.

2. Beware of how you frame your questions and what questions you ask.  Asking the right questions is essential, which is an awfully hard ask if you are inexperienced and are expecting your information provider to be the holder of all wisdom.

It is better to ask ten questions than one, to ensure you and the person providing the advice completely understand the questions, the intent of the questions and the answers being offered. There are quite often “but if”, or “except in the case of” exceptions that apply to employment law and you may not be receiving all of the information you require, if your questioning is misleading or incomplete.

Again, this is why it’s important to research and have a little background knowledge on the question/s you are trying to answer and to always think “how will this advice stand up in court”.

3. Get it in writing!  Everything in payroll and HR is a potential legal issue and your best defence in a legal matter is evidence. Again, when seeking advice, utilise email where you can for a clear audit trail and ask to be directed to documented evidence of the advice you are receiving, so you can print that out as well, such as the published pay rates, or the clauses of the applicable legislative documents, or a publication on the Fair Work website.

Fair Work have made it impossible to get a direct response to a question in writing. They offer only a telephone advice line, or an out of office hours email service, from which they will ring you back within 5 days (which someone at Fair Work mistakenly thinks is customer service). They used to have an online chat facility, that enabled you to print out the conversation, but that’s been shut down. The only “in writing” response you can get from Fair Work these days is to print out information they have available on their website.

Seeking legislative advice via telephone (from any source including employer and payroll/HR associations) is a last resort and where this is your only option, you should ensure your questions are all documented and as each question is answered, document the advice you receive. The date and time of the phone call also needs to be documented, along with the full name and position of the person you spoke to.

4. Double Check the Advice…  Any advice that you receive from an individual should be verified and with the volume of information freely available on the internet, verification is not hard to accomplish. Whether that individual is your payroll officer, an accountant, a Fair Work representative or a telephone advisor from an association, you cannot be sure of their ability to correctly interpret legislation or their wealth of experience in doing so.

I’m probably not telling you anything new, by stating that employment legislation is complex, multi-faceted and relatively difficult to stay fully abreast of unless that is your full time role.

When you seek advice from an organisation who professes to be the font of knowledge you would expect that their advice should be gospel, but that is not always the case.

The law holds the owners, directors and responsible officers of the business liable for compliance and ignorance of the law is never an excuse for non-compliance. As such it is your responsibility to ensure you have full information, correct interpretation or a damn good defence case.

 

 

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

Advertisements
March 23, 2014

Payrollers! Are You Prepared for the New Australian Privacy Principles in force on March 12, 2014?


privacy

The new Australian Privacy Principles came into effect on March 12, 2014 and replace the National Privacy Principles and apply to all organisations (with some exceptions), as well as Australian government agencies.

The objective of the Principles is to ensure that organisations manage personal information in “an open and transparent way” and some of the key areas that relate to payroll functions include:

  • All organisations must take reasonable steps to implement practices, procedures and systems to ensure the organisation complies with the Australian Privacy Principles and to provide a system of dealing with enquiries and/or complaints
  • All organisations must have a clearly expressed and up to date policy about the management of personal information, including:
  1. The kinds of information the organisation collects and holds
  2. How the organisation collects and holds the personal information
  3. The purpose of the collection, holding, use and disclosure of the information
  4. How an individual may access personal information and correct any information
  5. How an individual may complain about a breach of the Principles
  6. Whether the organisation is likely to disclose the personal information to an overseas entity
  7. If the organisation is likely to disclose personal information to an overseas entity, the countries in which that may occur
  8. Organisations must not collect personal information unless the information is reasonably necessary for one or more of the organisation’s functions or activities
  • Organisations must not collect “sensitive” information about an individual unless an individual consents to the collection and the information is reasonably necessary for one or more of the organisations functions or activities
  • If “sensitive” personal information is collected as a requirement by law or a “permitted general situation exists in relation to the collection of the information”
  • Where an organisation holds personal information that was collected for a particular purpose (the primary purpose), the organisation must not use or disclose the information for another purpose (a secondary purpose) unless the individual has consented, or the individual would reasonably expect the organisation to use or disclose the personal information for the secondary purpose, or if the use or disclosure of the personal information is required  or authorised under an Australian law
  • Before an organisation discloses personal information about an individual to an overseas recipient, the organisation must take all reasonable steps to ensure that the overseas recipient does not breach the Australian Privacy Principles
  • An organisation must take reasonable steps to ensure the integrity of all personal information to ensure the information is accurate, up to date and complete
  • An organisation must take reasonable steps to ensure the personal information is protected from misuse, interference and loss and from unauthorized access, modification or disclosure

If an organisation refuses to correct the personal information as requested by the individual, the entity must give the individual a written notice that sets out the reasons for the refusal, the mechanisms available to the individual to complain about the refusal and any other matter prescribed by the regulations

All organisations must take reasonable steps to implement practices, procedures and systems to ensure the organisation complies with the Australian Privacy Principles and to provide a system of dealing with enquiries and/or complaints

All organisations must have a clearly expressed and up to date policy about the management of personal information, including:

If you are a Payroll Manager or hold a position of responsibility for the management, security, disclosure and use of personal information you can be fined under the Act for non-compliance, apparently up to $340,000.  I’ve not studied the Act yet to understand whether this is per offence, which could be a devastating blow for an individual who is responsible for the disclosure of a substantial numbers of employee’s information, where there is a security breach or a non-compliant business practice.

If your organisation hasn’t made a big deal out of the new Australian Privacy Principles as far as payroll is concerned, especially if you outsource any part of your payroll function, you have a couple of days to establish how your payroll function will ensure compliance.

According to this Smart Company article on 5th March 2014 “The laws will apply to businesses that turn over more than $3 million a year and collect personal data.

However, there are some small businesses which turn over less than $3 million that will still need to abide by the new legislation. For example, the laws apply if the business is a health services provider, related to a larger business, trades in personal information, or is a contractor which provides services under a Commonwealth contract.”

For more information on the changes to the Privacy Act, visit the Office of the Australian Information Commissioner (OAIC) website.

If you are unsure whether the Privacy Act applies to your business, check out the Privacy Checklist for Small Business from the OAIC.

More articles on the Australian Privacy Principles from Australian Law Firms:

Australia: Are you compliant with new privacy laws coming into effect 12 March 2014? By Dan Brush of CBP Lawyers on mondaq.com

Australia: Major changes to Australia’s Privacy Act: Why they matter for foreign IT suppliers doing business in Australia by David Smith of Corrs Chambers Wesgarth on mondaq.com

Australia: Timely Guidance from the Privacy Commissioner – APP Guildelines Released by Sophie Bradshaw of Corrs Chambers Westgarth on mondaq.com

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2014 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

January 13, 2014

The #1 Unknown Australian Salary Packaging Consequence Your Employees Need to Know About


While business is to be commended for the efforts to share the benefits of salary packaging with employees across the board, it still confounds me that employees are entering into salary packaging arrangements oblivious to the REAL financial impact on their finances.

If you are going to offer a broad based Salary Packaging program to your employees, you MUST educate your employees, or at the very least strongly encourage them to seek independent financial advice from the ATO, their financial planner, tax adviser or accountant.  An employee will be far more encouraged to seek advice, if they understand along with the pros, that there are some serious cons.

The greatest unknown by most Australian employees is the impact of Reportable Fringe Benefits on their assessable income and the consequence of that increased assessable income on their entitlement to government benefits, multiple tax offsets, child support obligations and entitlements and HELP/SFSS repayment calculations.

Employers present calculations to the employees showing the net pay difference between a packaged and non-packaged salary, often without any reference to the potential consequences of their increased Reportable Fringe Benefits amount on their payment summaries.  Employees sign up to the salary packaging programme wholeheartedly, rejoicing in their “extra” income… until they submit their tax return.

Once their tax return is processed, many employees learn a very hard lesson.  Their windfall in undertaking salary packaging, has just earned them lost tax benefits; or an increased debt to the ATO for HELP/SFSS; or the Child Support Agency advises they now owe considerably more Child Support or will receive considerably less; or Human Services advises they owe for overpaid benefits.

While some payroll people may think that the likelihood of this consequence is minimal, consider the number of employees you have with HELP/SFSS debts; that we live in a society where almost half of marriages end in divorce; and that a majority of families with children under the age of 18 are entitled to Family Assistance.

Over the years I’ve implemented this in a few businesses and employees still come to the payroll team at year end and ask why payroll didn’t take enough tax, or why they weren’t advised, when they quite obviously were.  To counteract the employees who don’t read fine print, simply ensure this information is not fine print.  A one page document that they sign and date, prior to undertaking any salary packaging, that clearly outlines the potential consequences and that they need to seek independent financial advice, is all you can do without physically clubbing them over the head or booking the appointment with the financial planner for them.

I can only encourage you to make the effort to implement this information into your salary packaging documentation and enable your employees to ask better questions of their financial advisers and to make more informed decisions.  You will be thanked for it by the reduction in furious or devastated employees, waving their Payment Summaries around at tax time.

This is what you MUST make your employees aware of as a minimum:

Salary Packaging may (because some items are classified as “exempt benefits”) result in an increased “Reportable Fringe Benefits” value on your Payment Summary, which will be used (in addition to your Gross Earnings) to calculate your assessable income for the following:

  • Medicare Levy Surcharge
  • Medicare Levy Surcharge lump sum payment in arrears tax offset
  • Deductions for personal super contributions
  • Super co-contribution
  • Tax offset for contributions to your spouse’s super
  • Mature age worker tax offset
  • Higher Education Loan Program (HELP) and Financial Supplement (SFSS) repayments
  • Dependent tax offsets, including
    • Dependent spouse
    • Child-housekeeper
    • Parent, spouse’s parent or invalid relative
  • Housekeeper tax offset
  • Senior Australians tax offset
  • Pensioner tax offset
  • Your child support obligations and entitlements
  • Your entitlement to certain income-tested government benefits (including Family Assistance)

Before undertaking salary packaging, you are advised to seek independent financial advice from the ATO, a financial planner, tax adviser or accountant.  If any of the above income assessable items affect you, it is imperative that you seek independent financial advice on the impact of salary packaging and increased Reportable Benefits.

The Fringe Benefits Tax year is April 01 to March 31 each year.  The total Reportable Fringe Benefits for this period will be documented on your Payment Summary the following June.

Employees who receive individual fringe benefits of $2,000 or more in a Fringe Benefits Tax year, will have the “grossed up” value of the fringe benefits reported on their Payment Summary.  This is the Reportable Fringe Benefit and the “grossed up” rate is 1.8692.

Therefore, if you receive $10,000 in taxable Fringe Benefits for example, this amount is multiplied (“grossed up”) by 1.8692 and becomes your Reportable Benefits total of $18,692 on your Payment Summary.

The additional amount of $18,692 is added to your gross earnings to calculate your income tested entitlements, outstandings and tax offsets as listed above.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2013 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

March 18, 2012

Salary Packaging and Tax Effective Employee Benefits


ppm logo - Edited (2)

Human Resource teams go to great length to research and offer Employee Benefits Programs to employees to achieve their organisational goals and Finance Managers work their hardest to evaluate and implement cost minimisation strategies. The provision of well researched and planned employee benefits can achieve both!

The age old debate between Tax Minimisation and Tax Avoidance remains, but where you can legally obtain a tax deduction why wouldn’t you! Employers should be looking to these tax advantages and promoting them to their most valued assets, if they truly feel that they are the organisations’ most valued assets.

Kerry Packer, the iconic Australian billionaire media magnate and rival to Rupert Murdoch said in a tax investigation in 1991 – “I am not evading tax in any way, shape or form. Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”

A Disclaimer for Me

The information contained in this article is based on Australian knowledge only and any action taken as a result of this article is to be thoroughly investigated as to its’ currency and legitimacy with the appropriate taxation legislation in Australia and any other country you seek to apply any information from this article to. While I am only discussing Australian options, there will be similar options in other countries and these will provide food for thought for your particular country, organisation and circumstance.

A Disclaimer for You

Individuals Are To Be Explicitly Encouraged to Seek Professional Financial Advice!

I’ll say it another way… You absolutely must advise individuals to seek professional advice from their taxation department, their financial planner or accountant prior to taking up any financial related salary packaging or employee benefits programs. Each employees’ financial situation varies significantly and there are financial consequences in salary packaging and encouraging people to utilise tax advantages that may not suit their individual financial situation.

Why Would We Bother?

A carefully planned salary packaging system can provide various cost savings to an organisation. Many automatically think that the company has to incur the fringe benefits tax (FBT) on employee benefits. On the contrary, the salary package can be structured to incorporate the FBT component, or employees can make voluntary after tax contributions to minimise the FBT liability, or both.

I will restate the “Knowledge is Power” and “Fore Armed is Forewarned” from the previous article. A benefit of working for your company does not have to be a physical benefit; it can be the provision of empowering information that assists the employee to make decisions for a better future. Some of the information in this article is simply that, tax advantages that are open to individuals no matter which company they are employed by, that they simply may not realise it exists.

If you are the one that opens their eyes, then they will hold you or the company higher and value the contribution you have made to them. If you dedicate some time to seek, offer and advise employees of tax effective salary packaging and tax deductions or offsets, they will believe that you truly do care and that you are serving their best interests. You will gain credibility, build business relationships, contribute to employee morale and more. From a human resources perspective, there are so many reasons to bother and these are listed below.

Liaising with Human Resources & Finance

There are very few organisations where the Payroll Manager will be able to get most of these offerings across the line without liaising with HR & Finance, with some managers even wondering how you dare to have the audacity to bring them to the table. I recommend you do your homework and have prepared submissions that sell the implementation to both your HR & Finance people.

Highlight the benefits to both the organisation and the employees, do your numbers, study the social wellbeing aspects, calculate your numbers and present the ideas that will require organisational approval. If you can work with the management of HR & Finance to bring some or all of these ideas to fruition, your employees will be thankful, at the very least.

Key Arguments for Finance

  • Potential cost savings of carefully planned salary packaging
  • Zero cost effect to the organisation of the tax minimisation offerings
  • Potential to reduce turnover, thus reducing the cost of employment and the cost of payroll production

Key Arguments for HR 

  • Actively contributes to Employee Engagement
  • Contributes to Corporate Social Responsibility
  • Steers you in the right direction to becoming an Employer of Choice
  • The provision of valuable financial information contributes to relationship building, trust and loyalty
  • Employees achieve more with the same rate of income and perceive they are being rewarded

What’s In It for the Employees?

  • Employees obviously receive greater benefit from their salary or wage
  • The increased perception of working for an organisation that does actually value them

Beware of Award or Industrial Instruments Excluding Employees

In Australia, we are undergoing a modernisation of our industrial relations system and the employment awards within it (although some would question the use of the word “modernisation”). There have been awards that specifically exclude salary sacrifice arrangements, so ensure you review your employees’ industrial instruments for exclusions.

What are Non Salary Packaged Tax Minimisation Options for Employees?

The Australian Taxation Office has common tax offsets available to individuals. It is well worth investigating the offsets in your country and utilising your knowledge base (from Innovation 1 – Creating a Knowledge Base) to advise employees who may not know these exist or that they are entitled to claim them.

Pre-Declaration of Income Tax Returns by Employees (ITWV Variation)

In Australia this is known as an Income Tax Withholding Variation Application (ITWV) or if you are old like me, the former terminology is the 221D Variation. Do not presume that wage earners are automatically excluded from this as I’ve met many people with multiple investment properties, hands in businesses and all sorts of tricky financials who are school teachers, tradespeople and process workers.

The ITWV Variation Application allows employees to apply for a variation on their tax rates by anticipating their future tax return. Instead of waiting until the end of the financial year to claim, if approved, they will receive a reduced tax rate during the current financial year and will receive additional net pay on a per pay basis.

Publish information and forms on your knowledge base for employees who may not know that they can apply for tax variations on their earnings.

After Tax Voluntary Superannuation Contributions

Any employee can contribute additional after-tax monies to their compliant superannuation fund. There is no immediate financial benefit from this, but it has the potential to change an individuals’ future. If the employee is a low or middle income earner though, they may be eligible for the Superannuation Co-Contributions Scheme, where personal after-tax superannuation contributions may be matched by the government, up to $1,000.

After Tax Voluntary Spouse Superannuation Contributions

Additionally, if an employees’ spouse works part-time and is on a low income, they may be eligible for rebates on contributions (to a threshold) that they make to their spouses’ superannuation.

Deferred Income Payments

It is legal, under Australian taxation law to defer employee payments (by request of the employee) so the tax implications in one financial year are minimised. It is only viable to do this if the following financial years’ earnings are not going to be impacted greatly by the withheld payment. If an employee is going on parental leave, taking an extended period of leave without pay, or retiring this is an option that could have significant financial benefit for the employee.

Workplace Giving

Although this is technically salary sacrifice, it does not usually fall within the same structure or framework as the offering of salary sacrificed employee benefits as it is governed by separate legislation and is to be made available to all employees.

If your organisation is active in the community and values its’ corporate responsibility, you could work with your management team to encourage the board to commit to matching contributions. Your employees will feel that the company is working with them to improve the community. This program has so many benefits in the eyes of employees, it’s hard to understand why after years of the legislation being enacted, so many organisations still haven’t got a Workplace Giving Program in place.

Open discussion with registered business owners or ABN Holders to test the legitimacy of them contracting to your organisation.

This is an area of risk, but again, if researched and managed properly is a potential winner for organisations and employees. There are many people employed by organisations that have businesses registered and are true or legitimate contractors. Organisations should really investigate the cost savings of employing these people as contractors, providing they can pass the employee-versus-contractor test under the taxation system.

Use your Current Creditor List as a Potential Employee Benefits List

Almost every organisation has creditors (and debtors for that matter) who wouldn’t mind expanding their businesses and creating a few new customers. If your business is sizeable enough, it is worth speaking to a few of these other organisations to see if they would like to offer benefits or discounts to your employees, to potentially increase their customer base. Employees will see the benefit in discount or special offerings for:

  • Vehicle leasing or purchasing
  • Banking or Financial Products
  • Tools and equipment
  • Computers and computer software
  • Practically anything is of value to someone!

Partner with Personal Service Professionals to Provide Employee Benefits

Find professionals that are willing to offer their services at a discounted introductory price, with the potential to create a larger client base. Any professional who understands the lifetime value of a customer, would jump at the chance to service a reasonably large potential client base.

If you directed 100 new clients to a professional on the first occasion, the lifetime value of that customer base alone would far outweigh any introductory discount on the initial service. A percentage of the initial 100 clients will refer the professional to their friends and family. If that professional returned every six to twelve months and secured new employees as customers their business will grow exponentially just from your partnering invitation.

What can you offer?

  • Will & Estate Planning
  • Financial Planning
  • Budgeting Assistance/Debt Reduction Strategist
  • Health Insurance Analyst
  • Home Loan Analyst
  • Tax Preparation Services
  • Legal Services

You could also partner with local businesses to provide discounts or loyalty programs such as Car Washes, Cafes, Dry Cleaners, Automotive Repairers, Home Maintenance & Cleaning, Tradespeople… the list is endless and your employees will love it.

Salary Packaging Employee Benefits… now it becomes more complex

Public Benevolent Institutions (Charities) and Hospitals in Australia In Australia

Public Benevolent Institutions, Hospitals and similar industry bodies are legislated separately for salary packaging. If your employer falls under this legislation, fringe benefits are offered and taxed separately and differently to the standard Fringe Benefits Tax legislation.

Employee Benefits are “Fringe Benefits”

Under the Australian Taxation System In Australia, employee benefits are not income taxable but are fringe benefits taxable (including benefits provided to spouses, family members and associates as a result of the employment of the individual).

Minimise the FBT liability by Employee Contributions

FBT liability is incurred by the employer and is a major discourager to organisations. Employees who make voluntary FBT contributions can minimise or eliminate the employers FBT expense. Your organisation can offer salary packaging with a company policy that provides that employees will incur the FBT liability and incorporate it into their salary package or have them make after tax contributions.

Organisations can Claim Back the Goods & Services Tax (GST)

Where the organisation provides a benefit, then the amount expended on the benefit becomes the organisations expense. The benefit provided to the employee is a good or a service purchased or leased by the organisation and therefore, the organisation is entitled to claim the GST back on that expense (taking into account Goods & Services Tax legislation, record keeping requirements and the actual “claim ability” of certain items).

Without an effective and efficient management system, managing the GST claim back of employee fringe benefits can be an administrative nightmare. As with all complex administrative processes, a good think, a good plan and good management will resolve the issues.

A warning for employers who provide employee benefits

If you provide cash benefits to employees, such as Expenses Payment Cards, the obligation is on the employer to ensure employees are purchasing legal goods and services. An expenses payment card program should not be implemented without the explicit requirement to produce valid receipts to support the expense, which should tie in to the expenses payment card statements, which the employer should receive digital copies of for record keeping and benefits management purposes.

A warning for employees who receive employee benefits

If an employee receives an employee benefit under a salary sacrifice arrangement (including all purchases on expenses payment cards), the employee is not entitled to any of the following:

  • Claim an income tax deduction for the expenses
  • Claim GST on the item as they did not purchase it
  • Depreciate the asset on an income tax return

It is important that employees understand this, as they may be falsely claiming deductions on tax returns.

Example 1: Right to claim Educational Expenses Tax Deduction In Australia, we have the ability to claim deductions for certain educational expenses for our children. If an employee has an expenses payment card issued by the employer as an employee benefit and uses that card to purchase a computer, monthly internet connection fees and stationery for their claimable school child, they will not be able to claim these items as a legitimate tax deduction. These items were legally purchased by the employer and the employer has the right to the expense as a business deduction and any associated GST. For the employee to claim a legitimate tax deduction on these items, they would have to purchase them out of income taxed earnings.

Example 2: Claiming a purchase as a legitimate business expense If an employee also happens to own a business and purchases business items on an employer provided expenses payment card (or physically receives these items as an employee benefit), the employee is not entitled to claim these items as legitimate business expenses, not claim the input tax credits on them. These items are not eligible for depreciation under the employees business either, as they are not legitimate business expenses. The goods or services were legally purchased by the employer and as such are legitimate business expenses for the employer not the employee.

Example 3: Using Employee Benefits for Investments (Properties or Other Investments) Serious issues arise when employees utilise employee benefits (including expenses payment cards) to fund investments (properties or otherwise) or purchase items for investment properties. Again, an individual cannot claim a tax deduction where the investment or the purchase has legally been made by the employer, through the provision of an employee benefit.

Example 4: Claiming Home Office Expenses on a Rented Home where the Employer Makes Rental Payments under a Salary Sacrificed Arrangement An employee has their total rental payments paid under a salary sacrifice scheme and all other expenses are paid by the employee from after tax wages, including their utility bills. If the employee or their spouse is a business owner and seeks to claim their home office and a portion of the utilities as a tax deduction, they are not entitled to do so. It is not a legitimate tax deduction as the employer is legally paying the rent on the home. They are entitled to claim a portion of the utilities however as these were paid from after tax wages. If your organisation offers benefits that could impact individuals in these ways, it is imperative that you advise them of these issues. Mortgage/Rental payments and expenses payment cards are the two primary areas of concern, but there are others.

Basically, employees need to understand that if they are not paying tax on it, they shouldn’t be able to claim a tax deduction on it!

What Can You Offer With Your Salary Packaging?

An employee can be provided any legal benefit and if the organisation agrees, just about anything can be paid or provided under a salary sacrifice arrangement, again provided it is legal. Any offer of salary sacrifice should be accompanied with strong encouragement to the employee to seek professional financial advice, as some benefits can actually expose the employee to financial losses in other areas.

An example of this is the salary sacrificing child care fees in Australia, which would increase the employees’ assessable income with the additional fringe benefits value added to their gross reportable income. This in turn, could reduce the employees’ claim to childcare rebate, making the employees’ child care fees even more exorbitant than they already were.

If you have a staff cafeteria, it is common to offer meal expenses payments as an employee benefit whereby staff make their purchases as they choose and the bill is paid by the employer to a pre-determined annual value.

Other offerings can include:

Health and Wellness Programs

  • Weight Watchers or similar
  • Quit Smoking Programs
  • Nutritionist
  • Gym Fees
  • Health Insurance

Life & Other Insurances

  • Life Insurance (there is now a minimum requirement in super funds)
  • Funeral Benefit
  • Total & Permanent Disability (TPD)
  • Accident Cover
  • Trauma Insurance
  • Income Protection

Note: Income Protection insurance is claimable as a tax deduction at Item 24 on the Individual Tax Return, so professional advice should be sought on the tax effectiveness of salary packaging Income Protection Insurance.

Payment of Student Loans

Employers could offer payment of student loans (HELP/SFSS Debts in Australia).

Employee Benefits Exempted from Fringe Benefits Tax

The Australian Fringe Benefits Tax legislation has the “minor benefits” exemption. A minor benefit is a benefit which has a ‘notional taxable value’ (grossed up value) of less than $300. Where you provide an employee with separate benefits that are in connection with each other (for example, a meal, a night’s accommodation and taxi travel) you need to look at each individual benefit provided to the employee to see if the notional taxable value of each benefit is less than $300.

Don’t think you can provide a myriad of minor benefits to an employee though, as a consistent provision of benefits of this kind, could be construed as an expenses payments fringe benefit.

Please note that employers must report on Payment Summaries, all Fringe Benefits items $2000 and over (grossed up value, per the Payment Summaries gross up method) and this has to be taken into consideration by employees for determination of assessable income for other financial situations.

Industry related education and training courses would be accessed by more people if they were more affordable. Offer employees access to it appears that someone else is footing the bill for it. While this is salary packaging, I’ve separated it from the salary packaging section, as an industry or “in the course of your profession” course does not fall under standard employee benefits incurring fringe benefits tax.

Professional memberships and subscriptions to trade journals or industry publications can be provided to employees either as a company offering or under a salary sacrifice arrangement, if the budget doesn’t extend to servicing all of your employees’ professional subscription and membership requirements.

There is provision in the Fringe Benefits Tax Assessment Act (Section 58N) to provide Emergency Assistance as exempt employee benefits. Benefits you provide by way of emergency assistance are exempt from FBT. Emergency assistance is assistance for immediate relief of a victim, or potential victim, of an emergency where the assistance is any of the following: first aid or other emergency health care; emergency meals, food supplies, clothing, accommodation, transport or use of household goods; temporary repairs; any similar matter.

Read up on this before you offer it though as there are restrictions on the provision of “health care” and these few paragraphs do not cover the complexity of Emergency Assistance as exempt employee benefits.

Salary Sacrificed Superannuation

Salary sacrificed super contributions are not a fringe benefit and are treated as employer contributions. Employers receive the tax benefit of paying additional funds into employees’ complying superannuation funds. There are complex restrictions on salary sacrificed super though and both employers and employees must remain vigilant of the contribution caps, maximum thresholds, concessional components and age based limits.

The tax on entry of funds into a superannuation fund is 15% (and 16.5% on exit), so an employee pumping salary sacrificed super away needs to take into consideration their retirement needs and the tax rate that would apply to this money if they earned it as salary or wages.

Beware of the caps! There are caps on the amount of concessional (before tax) and non-concessional (after tax) contributions you can make each year. If you exceed the cap, there is an excess contributions tax of an additional 31.5% of the amount exceeding the cap.

Access to Financial Assistance Outside of Your Organisation

This was mentioned in the Innovation 1 article, but is such a pertinent item in todays’ crazy world with environmental disasters, high divorce rates, the rise in terminal illnesses, the collapse of the housing markets and all the other day to day tragedies we face as a community. Your employees may be in desperate need of financial assistance and most of us don’t like to advertise our desperation, so if we post on our knowledge bases ways to access financial assistance, we are providing an invaluable community service to our employees.

Look on your local council, state & federal government and welfare department websites for information that would assist your employees. Private companies also are able to assist in times of financial crisis, such as mortgage providers freezing loan repayments, superannuation funds releasing funds for crisis and so on.

Advising Employees of Available Tax Deductions & Tax Offsets

It costs nothing to post information on your knowledge base about employee eligibility to legitimate tax deductions and tax offsets. Many organisations are wary of their liability in providing such information, which is easily waived by posting tax department published PDF files or internet links to your taxation departments publications.

Some people do not realise that they are entitled to claim for the travel between work and their training institution, or the difference between what they normally would travel for work and the extended travel to a training course or business meeting. This is a value add for your “customers” that may have a significant impact on them.

Self Education expenses is another area where employees may benefit from more information as they do not realise the extent of the deductions they are entitled to.  Additionally there is the Housekeeper Tax Offset; Education Tax Refund; Family Tax Offsets; and Investing on Behalf of Children.

Now to Get Started…

The offering of employee benefits is a minefield, but it’s a minefield worth crossing if you truly want to offer your employees the best value out of their salaries and wages and provide an employee benefits program that engages rather than alienates employees.

If you are unsure what your employees would be interested in, ask them! Even if you got together a working party and included a cross section of your employees in that working party to begin the big picture design. If you do your homework and it falls on deaf ears, at the very least you can begin to populate your knowledge base with the wealth of information that employees could utilise on eligible tax deductions and tax offsets. If they know about these options, they can plan for them and save their receipts.

Should you decide to embark on this path, I wish you well in your endeavours and as always would love to learn more from you or help you in your journey. You can open discussion via this site or contact me directly at louisevidler@optus.ap.blackberry.net

© 2012, Louise Vidler

Excerpts from the Australian Taxation Office:

About tax minimisation and tax avoidance schemes

You are entitled to minimise your tax liabilities through investment activities and to receive the benefits provided for under the law. Tax minimisation is when you legitimately arrange your tax affairs to reduce the amount of tax you pay. These arrangements comply with both the letter and spirit of the law. However, investment schemes and legal structures that do not comply with the law are considered to be aggressive tax planning arrangements – referred to as tax schemes. A tax scheme is an artificial or contrived arrangement to avoid or defer tax obligations. Schemes often involve a series of complex transactions. They typically move funds through several entities, such as trusts, in order to avoid or minimise tax otherwise payable. Schemes may also involve distorting the way funds are being used to enable a taxpayer to claim deductions they are not entitled to.

What is a salary sacrifice arrangement?

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. It is an arrangement between you and your employer, whereby you agree to forgo part of your future entitlement to salary or wages in return for your employer providing you with benefits of a similar value.

What are the requirements for an effective salary sacrifice arrangement?

The requirements of an effective salary sacrifice arrangement are: • the arrangement is entered with your employer before you perform the work • there is an agreement between you and your employer • there should be no access to the sacrificed salary – if a fringe benefit that has not be provided by your employer is cashed out at the end of a salary sacrifice arrangement accounting period, the amount cashed out is your salary and is taxed as normal income.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2012 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

March 14, 2012

Creating a Payroll Knowledge Base


ppm logo - Edited (2)

“Ask yourself who uses what you do and how valuable to them is what you do.  Then ask yourself whether they recognise themselves as your customer.”  Anonymous

Note: I have attempted to eliminate usage of country specific names and terms for ease of reading by a global audience.

 A knowledge base, for those that haven’t seen one previously, is exactly what it sounds like: a base point where knowledge is stored, to be accessed by those who need to understand information, requirements, policies, procedures and so on.

If you are in a large organisation, there has probably been a great deal invested in the design and creation of an intranet to service as a knowledge base for all the business and support units.  Smaller organisations may not even have an intranet, in which case your knowledge base can be provided in print format in the form of Employee Handbooks, New Employee Packs, Information Handouts, Administrator & Manager Guides to Payroll and internal Payroll Operations Manuals.

Why bother?

Our first reason to bother with a knowledge base is to provide service excellence.  Organisations invest millions and go to extreme lengths to implement customer service policies and programs for their external customers.  These same organisations espouse strongly their commitment to their most valuable assets: their employees, but what level of human effort or monetary investment is contributed to providing decent customer service to internal customers?  For payroll teams, these internal customers are the employees you pay, the management you report to (hierarchically and the provision of actual reports) and the dealings you have with all other people that “touch” your payroll service.

You’ve all heard the maxims: Fore armed is forewarned; Knowledge is Power; You can’t manage what you don’t measure.  A good knowledge base will contribute to organisational effectiveness and work as a response to each of these maxims.

As you read through the article you will come to understand how a well thought out, constructive knowledge base, that is marketed well, can also significantly impact each of the following:

  • Building the payroll teams’ knowledge and capabilities
  • Improvement of payroll efficiency, compliance and integrity
  • Contribution to the minimisation of Error Rates
  • Provision of value added services
  • Empowerment of payroll team members, employees and participants in the payroll process
  • Provision of transparency in the payroll process
  • Contribution to the protection of intellectual property and business processes
  • Assisting in the building of  business relationships
  • Contribution to the credibility of the payroll process
  • Highlighting the complexity of the payroll process
  • Education of your customers on the importance of compliant data inputs
  • Reduction of your daily reactive fire fighting activities and a turning of the tide into pro-activity

Who are we supposed to serve with a Knowledge Base?

A knowledge base should service the payroll team, all contributors to the payroll process and our multiple customers including the employees we pay, the managers we provide reporting to and the other support units of the organisation including the Finance and Human Resources teams.  Depending on the size and diversity of the organisation, additional support units could include departments that specifically handle Workers Compensation, Corporate Governance, Statutory Taxation, Payroll Accounting, IT or Payroll Systems Administration and others.

For the benefit of simplicity, we will focus on our primary customers:  employees, managers and administrators of payroll information.

How complex does a Knowledge Base need to be?

Stick to the KISS (Keep It Simple Stupid) principle every time.  The less complicated a knowledge base is, the more it will be accessed and utilised.  The volume of content you place in it will be driven by the degree of complexity in each payroll or business and the extent of employee benefits the company provides.

What information could employees possibly want out of it?

Ask yourself what problems your employees commonly have.  What are their primary concerns and challenges in the payroll process?  How can you help?  You can build enormous credibility by pin-pointing and addressing your employees’ pain points.  The provision of information that benefits employees and assists them to make informed payroll decisions and transactions, shows that you are empathetic to them and focused on servicing them.

The first place to look for employee pain points is to analyse your most consistent payroll errors and queries and establish what the constants are.

If, for example, you are consistently baffled by the inability of employees to correctly complete a tax form, then this is a must have on your knowledge base.  In Australia, the tax file number (social security number in the US) declaration form has an information sheet attached explaining how to complete the form, but there are always the same issues presenting themselves by employees not completing the forms correctly.  Additionally, if an employee submits their form incorrectly, by law, we are to interpret it using the worst case scenario which can result in taxing the employee at the highest marginal rate.  Living by this rule is easy enough from compliance and processing perspective, but it causes great personal grief to employees, which is then imparted onto the payroll officer handling the aggrieved employees query.

This can be resolved simply, with the introduction of a document on your knowledge base titled “Understanding the Tax File Number Declaration”.  Within the document, an explanation of how the taxation will be applied by certain answers and what the implications will be of not providing a tax file number within the required time limit.  This simple task reduces so much grief and calls employees to action, as it is in their highest interest not to be taxed half of their pay.  I have seen in the US, it is common for employees to misunderstand the W2 and W4 forms, this can be resolved by explaining the difference between, and the importance of, the two forms.  If you need the explanatory note to be a little more “in your face”, attach it to the front of the relevant forms in the New Employee Packages or have it pop up online prior to them accessing the relevant online form.

The key to providing information that calls for action is to use minimal words, maximum impact and the strongest motivators.  Remembering that many people are visual beings, include pictures!  There’s not a lot you can do about the auditory beings, but technology might assist in that one day.

In Australia a few years back, salary packaging was extended by legislation, to all staff of hospitals and charitable organisations, in an attempt to counteract the low award wages and attract people to the industry.  The biggest issue that came out of this though for employees, was the impact the seemingly attractive salary packaging had on their student loans, child support, child benefits and any other welfare payments they may have been claiming.  Employees took up the salary packaging option without realising that it increased their assessable income for all of these other aspects of their lives.  Once the end of the financial year arrived and they started submitting their tax returns, all hell broke loose.  People were being assessed on their ordinary earnings, plus the grossed up fringe benefits and finding they had been overpaid social security payments and were underpaying student loans and child support.  These industries are full of university graduates and also sadly have a high percentage of welfare recipients, in comparison to other industries.  It was chaos.

To counteract this for the future, a guide titled “Understanding Salary Packaging” was introduced to explain these issues and each employee had to sign that they had read the guide prior to taking up salary packaging options.  In the guide, there were massive STOP signs and warning symbols to highlight the potential issues for them.  We provided little tips on how to circumvent future welfare or student loan debts, by explaining how to contribute extra tax to account for the salary packaging impacts.

Another constant query is new employees asking when they will be paid, which should be addressed in induction or orientation programs, but can be added to your knowledge base.

In your knowledge base, include explanations for employees on “what if”, “how to” and “what do I do” scenarios for the common pay queries:

  • What do I do if my pay is short
  • What do I do if I haven’t been paid
  • What do I do if I lose my pay card
  • How to change your bank details
  • How to apply for salary packaging
  • How to apply for leave (and leave payments in advance)
  • Why have you taken garnishees or child support out of my pay without telling me
  • How to complete your timesheet correctly (and preferably legibly)

The pay office is the first point of call invariably, and in most cases we have to redirect the employee back to their supervisor or bank or other area to establish some key facts first.  Minimise these queries, by including the steps they should take, such as talking to their supervisor about incorrect pays as the first step so they can ensure the timesheet was correctly submitted in the first place.

Incorrect bank account details can cause serious headaches and can be addressed with a simple explanation note on the bank details form, or by having employees attach a deposit slip or cancelled cheque to the bank form for verification.  When payments are rejected from bank accounts, it causes distress for employees and wastes valuable time that payroll officers could be utilising adding value to the payroll service.

Once you’ve established some vital information on your knowledge base that serves to eliminate pain points, go above and beyond and provide information that further empowers them, such as:

  • Contact details for the pay office, taxation departments, medical funds, superannuation providers, etc
  • Every single form an employee may need to access in their employment lifetime
  • Updates on legislative or procedural changes that directly affect them
  • New employee packages that explain what they need to know and do (and when they will get paid)
  • Nice to know information from superannuation funds, medical funds, employee share schemes, etc
  • If membership of any third party creditor comes with additional benefits, let the employees know (such as discount offers, insurance offers, etc)
  • Handy website links to government schemes or aide programs affecting your employees (in Australia: Paid Parental Leave, Lost Super, Centrelinks’ Emergency Assistance lines for employees suffering from environmental or personal emergencies and so on)
  • A listing of the coming years’ public holidays
  • Details of your Workplace Giving Program and why they should be a part of it
  • An invitation for feedback or ideas from your employees

What Information Would Managers Want?

Again, start with your pain points – yours and theirs.  Whatever causes grief, can be addressed by arming the right people with the right information.  From my experience, I have learned that these are the kinds of things that Business Managers want from payroll:

  • No noise or fuss (just get it done correctly, every time, and don’t cause me any fuss in the process)
  • A miraculous discovery of how to halve payroll costs (good luck with that one!)
  • Advance notice of any potential IR, ER, HR (and many more R’s) issues that may arise through payroll
  • Assurance that employees are paid compliantly
  • Assurance that the correct number of employees are being paid from the payroll system
  • Correct allocation of all costs associated with the payroll
  • Assurance that the correct amounts are paid for income tax, superannuation, payroll tax, workers compensation insurance, fringe benefits tax, etc
  • Assurance that correct termination entitlements are paid out to employees
  • To spend less time on payroll processing and payroll queries
  • To reduce the overall cost of payroll production
  • Accurate calculation and accumulation of leave liabilities
  • Timely reporting of significant dates (i.e. probation review expiries, special anniversary dates, etc)
  • Advance notice on legislative changes that will affect future payroll costs
  • Budgetary comparisons
  • Overtime, Absence and other payroll costs as a percentage of total payroll costs
  • Assistance with salary reviews via the simplest feedback system possible
  • Information of absenteeism that enables them to pinpoint people and favourite days and see the cost absenteeism is contributing to their bottom lines
  • Workers compensation reporting for submission of annual earnings data to insurance companies
  • Workers compensation reporting on highlights of current workers compensation payments
  • Key employee statistics (average age, years of service, mgt to production ratios, etc)
  • Payroll Issue or Error rates of business units (Name this report carefully in order to build business relationships)
  • If you are a Shared Services Business or Payroll Outsourcer, management want to identify ways to reduce the payroll processing fees (which you can counteract with brilliant service options to again increase them)
  • Effective head count reporting that provides:
    • an overview of the company divisional allocation
    • exact reporting of total employee number
    • alert management to non paid employees left sitting on the payroll
    • alert management to ghosts on payroll
    • highlight volume of new employees and terminations
    • show turnover rates

These are just a few of the things that management want from you.  All you need to do now is start answering these needs one by one.  Your goal is to understand the management teams’ WIFM – “What’s In it For Me” and create reports that are “decision drivers“.  If you haven’t already, learn about Business Dashboards and provide key metrics and statistics that management can easily interpret to know if action needs to be taken to implement improvements.

Talk to, and listen carefully to your management team and learn what information can be provided in value add reports that can drive their operating costs down.  If management discard your expertise at the outset, create the reports and deliver them anyway and managers worth their salt, who understand the numbers, will begin conversation themselves and your reports will come to have some impact.  Ensure you don’t send volumes of information out, as it won’t be welcomed.  Stick to short, sharp numbers and brief highlights of what the information is telling you (i.e.: Absenteeism in Department X is 78% higher than all other departments) to elicit calls to action from management.  The business should welcome your attempts to open discussion about improvement areas.  Word your highlights carefully, as you want to maintain and improve business relationships, not create enemies.

One major consideration in the gathering of data for management reports like these, is the ability of your payroll or HRIS system to extract the data easily and how you present the data.  If you know Microsoft Excel fairly well, you can create some great reports from pitiful payroll data extractions.

How Can We Serve Providers of Payroll Inputs With A Knowledge Base?

The key to providing a completely correct payroll service is the quality of the data inputs coming in to the process.  This information alone should be enough to convince you that the payroll team should partner with every contributor to the payroll process to ensure the quality of the inputs.

Help yourself by helping the administrators of payroll information to understand what the requirements are by giving them a guide that steps through the process from their perspective.  Outline the deadline requirements and explain in simple terms how it should be done.  Not everyone that processes timesheets for a business unit understands the complexities of payroll or industrial agreements.  They only know what they know, and that might not be enough to allow for a seamless payroll process.

Information in the “Administrators Guide to Payroll Processing” should also include helpful items such as:

  • Contact names and numbers of people they can reach for help
  • Payroll processing deadlines (including shut down periods and public holidays)
  • Frequently Asked Questions to enable them to handle simple payroll queries as the first point of contact for many employees
  • “How To” instructions on common issues or queries that they should be addressing
  • Identify common errors and omissions from administrators and let them know the impacts these have on the payroll process (nicely)
  • Any other information that impacts the quality data being delivered by them to the payroll team

What Other Information Would Our Customers Want?

To find out what your customers want to know, there are two simple steps to take.  Firstly, you ask them!  You can ask your employees, managers and other customers what information would help them and then work to provide it.

Sometimes, people do not really know what product or service they need, but have a problem that needs a solution, so secondly, you listen to them.  Listening to your customers should be a systematic, daily process that is built into your personality, let alone your daily functions.  One persons’ anguish or confusion could result in another valuable piece of information that many others could utilise.

Building a Knowledge Base for the Payroll Team

To achieve our end goal of providing a compliant, correct, on time payroll, we need to arm our Payroll Team with the knowledge they require to achieve that end goal.  So many payroll teams operate from disjointed processes that usually vary between payroll officers.  They’ve collected bits and pieces over time and invariably the loss of a payroll officer from the team also results in a loss of valuable knowledge of the intricacies of the process.

To ensure the preservation of organisational knowledge and the competence of your payroll team as a whole, invest your time in collecting, documenting and publishing vital information such as:

  • Documented payroll processes, checklists and deadlines
  • Orientation or induction program contents
  • Master forms used in the payroll process
  • Policies and Procedures relating to payroll processing
  • Legislation and Employment Agreements/Industrial Instruments that relate to your organisation
  • How To Guides (How to Calculate Tax on Termination, How to Pay Upon Death of an Employee, etc)
  • Tax rates and calculators that you need to perform all of your tasks with
  • Links to helpful sites that provide additional information
  • Answers to everything they need to know to serve your customers at their best

How Do We Actually Get People to Start Using the Knowledge Base?

Once you’ve created your knowledge base, the next step is to ensure you drive people to use it.  You have to promote it and refer people to it regularly…  If people ring with questions, you can refer them to the knowledge base on the intranet (or a document that you can email them) and walk them through it.  Over time, this will encourage people to use the knowledge base as their first point of call, until the time comes when your queries start with this conversation – “I’ve just searched the knowledge base and I couldn’t find any information on …”

Encourage your own team to utilise the knowledge base by eliminating all other sources of personal notes and individual processes and holding your payroll teams’ knowledge in the central knowledge base (in print or online format).  Every time someone has a question, a chorus of voices should either say “It’s in the knowledge base!” or “That needs to be in the knowledge base!”

Let’s Get Started Then…

To assist those of you following this series, I’ve opened a conversation on the Linkedin group “The Professional Payroll Manager” and welcome questions, comments or suggestions on the discussion board, so we can all work together to improve our global payroll world.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2012 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

February 20, 2012

How The Magic Payroll Button Really Works


ppm logo - Edited (2)

It’s time for a little trumpet blowing and foot stomping by payroll professionals.  Alarmingly, there are still so many managers and business leaders who think we have a magic payroll button that takes little to no skill to press. For some, the belief is that anyone with half an ounce upstairs could run a payroll! When something goes wrong, the question is raised “Why is it so hard!?”.

Sadly, it’s often the managers of the payroll team with this flawed perception.  They might serve their team and themselves well to spend a little time getting a new perspective on what I honestly and unbiasly believe is one of the most committed work groups in a company.  What other department stays as long as it takes through hell and high water to process an EFT file, again and again, without thanks.

Lets take a look at the diversity of knowledge a payroller is actually required to have… and how we get that seemingly magic button to work…

Service Excellence

We are expected to be consummate customer service representatives, with superior conflict management skills; responding to technical questions on the spot; remaining calm in the face of irate employees, who sometimes hit you with a tirade of swearing. We must be mind readers; hide our anger as we are treated as lower class citizens by people who think that God created us unequal; hide our laughter at the ridiculous requests; and empathise with the employee who needs their money yesterday because they can’t feed their kids or put petrol in the car to get to work.  We solve problems day in and out and its’ when we can’t, or don’t, that others in the organisation begin to hear about it.

Business Relationships

Payrollers liaise with employees, managers, the finance team, the human resources team, solicitors, workers compensation insurers, auditors, the Child Support Agency, medical funds, unions, employer associations, banks and finance companies, social security, superannuation funds and the taxation office.  These people and organisations make demands upon us and expect the same service excellence that our employees expect from us.  It doesn’t matter if we have a Service Level Agreement stating when we will respond to requests, because most of these relationships are bound by law and so are the timeframes in which we have to jump.

Time Constraints

Payrollers actually performing the payroll process are under constant stress during the time between the receipt of the input data, to the time the funds are transferred to the bank.  If we are lucky enough to have all the data provided correctly and on time, its a fairly calm payroll day, but that is not a standard practice in the world of payroll.  There’s usually a pretty tight timeframe, a whole list of queries awaiting resolution by people who won’t return phone calls and emails. Achieving a zero error rate demands a great deal of validation and questions.

Policies & Procedures

Apart from having to know the company policies & procedures intimately, there is usually a fair amount of time spent by pro-active Payroll Managers referencing policies or documenting and updating payroll procedures as innovations are implemented and best practices are discovered.

Employee/Industrial Relations

We have to be constantly mindful of the consequences of our actions on employee relations and foresee human resource management issues that may emerge, or are already in effect. Every interaction with an employee and every payslip is a potential ER/IR disaster if not managed well.  This is a top of mind issue for all payrollers.

Accounting Principles

In order for payrollers to competently process payrolls, we must understand accounting principles to effect many of the transactions we do in our standard day.  Debits and Credits run deep in the simplest of payroll general ledgers, multiplied by the complexity of organisations with numerous companies and differing cost account structures.

Advanced MS Excel

Ask any Payroll Manager what their major reporting tool is and the answer will invariably be MS Excel, so add advanced Excel to the list of tricks a professional payroller has.

IT Systems Administration

Unless you have dedicated reources for your payroll, HRIS or time & attendance system, many payrollers are tasked with this function.   Report writing in some payroll systems is an acquired skill from years of practice and often the only avenue for extracting decent data from the payroll system.

Project Management

At any time, there will be multiple payroll projects in the pipeline.  System upgrades, new EBAs, legislative changes to address and more.  Payroll Managers and their staff are juggling diverse management needs, moving target dates, sometimes a lack of resourcing, shifting management priorities and insufficient hours in the day to keep their projects from falling over.

Legislative & Industrial Framework

We are expected to have in-depth working knowledge of the endless legislation that affects the organisation: Fair Work Act and its’ predecessors, Workers Compensation by state, OH&S, Payroll Slips Regulations, Annual Leave, Long Service Leave and Public Holidays by state, Superannuation Guarantee Acts … phew!

There are those of us to have to be more than familiar with Sarbanes Oxley, Immigration Act, Australian and International Standards and the legislation surrounding corporate governance. Added to this is each of the Industrial Instruments an organisation works under. We must know how the binding legislation or award modernisation system works in with these awards and which bits count these days and which bits don’t.

Complex Taxation System

An absolute imperative is intimate knowledge of taxation for every possible payment type paid under every fathomable scenario. Payrollers contend with legislation, calculation and queries on income tax, fringe benefits tax, medicare, student loans schemes, GST, payroll tax by state…another phew! …and that’s not all of it.  If the business employs expats or has overseas operations then international tax issues become prevalent.

Remuneration & Benefits

Payrollers worth their salt understand Salary Packaging and its complexities. We have to, to apply it correctly in the system, tax it correctly and ensure the benefits are applied correctly.

Global Best Practice

It is expected that effective validations have been performed to minimise or eliminate errors.  It is imperative the payroll is delivered on time.  It is expected that it is 100% accurate. It must be time and cost efficient. Process and metrics must compare to global best practices.

HR/Payroll Analysis

On top of ensuring the company and statutory reporting is delivered on time, there”s those constant ‘little’ urgent queries. The ‘little’ queries that require considerable time investigating or pulling information to answer the original, simple question.  Then there’s the analysis, budgetting, forecasting, scenarios, cost impacts, etc that come with frequency, but never enough warning.

All of the functions and requirements listed above are only a part of the skill based that Payrollers must have to be successful in their roles.  Understanding a day in the life of a payroller may go a little way to explaining the personality of some of us as well.  Payroll people are renowned for being…let’s say frank… and that’s partly because a decent majority of us haven’t got time for flowery and fluffy. There’s so much work to get through and often we simply want the facts, the required outcome and a timeframe.  To achieve 100% accuracy, a service excellence rating to die for and a reputation to be proud of takes a wealth of knowledge, committed effort, resilience, many tears and mastering the art of juggling tasks and priorities.

In all of this, the only buttons that I’ve ever witnessed possessing some kind of magical powers are the shutdown button on my computer, the light switch button and the elevator down button at the end of a tragic payroll day.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2012 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

February 1, 2012

You Absolutely Must Measure Payroll Error Rates!


ppm logo - Edited (2)

“More people would learn from their mistakes if they weren’t so busy denying them.”  J Harold

A critical function of the Professional Payroll Manager is to minimise, if not eliminate, error rates. Payroll errors occur for a myriad of reasons and if you spend your days fire fighting, rather than investigating, you will probably see a compounding increase in the ongoing error rates.

  • High error rates are detrimental to a service excellence focussed payroll team for so many reasons:
  • It is a reputation destroyer
  • Highlights compliance issues and attracts the attention of auditors
  • Interferes with industrial/employment relations
  • Inhibits efficiencies and blows out costs of payroll production

By implementing an effective measurement system, you can identify the volume of errors and the resultant root causes of each one, in order to execute solid corrective measures to eliminate reoccurrences. The root causes are easily identified and usually fall into one of the following categories:

  • Payroll staff require retraining or instruction in a particular area
  • Employees, Line Managers or HR staff require learning or instruction
  • Effective processes and checklists are not in place
  • Incorrect parameters (or a bug) in the payroll system
  • Input information is not supplied correctly
  • Fraudulent activities may be occurring

When building your error measurement system you need to record and analyse the following data as a minimum:

  • The affected employees and the rate of incidence
  • Dates of occurrence, identification and resolution
  • Who was involved in the end to end process
  • Who identified the error and how
  • Why it was not identified in the payroll process
  • The reason for the error
  • The re-occurrence risk
  • The corrective action required to eliminate further similar errors

Remind yourself and your team that error reporting is not about counting and allocating mistakes, but is about implementing systems and checkpoints to minimise errors and to improve capabilities, service and efficiencies.

An effective error measurement system makes good business sense, shows your commitment to service excellence and continuous improvement and goes a long way to ensuring compliance and efficiency.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2012 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

January 31, 2012

What does Payroll Management really mean?


ppm logo - Edited (2)

Whether you manage a payroll of 20 or 20,000 people, the fundamentals remain the same.  Large or small, the payroll function must always include the same integral functions.  There are also certain personal qualities, attributes, skills, experience requirements and abilities that are required of Payroll Managers.

The typical position requirements of a Payroll Manager are to:

  • Continually adapt the payroll function to remain legislatively compliant
  • Lead, motivate and manage the payroll team
  • Develop and implement effective policies, procedures and business systems
  • Lay solid audit trails
  • Identify and manage risks associated with payroll production
  • Identify, report and assist in managing employee relations issues that arise
  • Interpret awards and legislation and inform management of changes
  • Understand basic accounting and general ledger concepts and complete monthly general ledger reconciliations
  • To assist with or manage salary packaging
  • Liaise with internal and external customers
  • Complete all company and statutory reporting including PAYG, Payroll Tax, FBT, etc
  • Manage the organisations’ superannuation funds
  • Manage Workers Compensation Claims and associated policy renewals
  • Support the senior management team

The typical personal skills and attributes required of a Payroll Manager are:

  • Professional in conduct and presentation
  • Exceptional communication (written and verbal)
  • High attention to detail
  • Progressive and dynamic
  • Pro-active problem solver
  • Change manager
  • Proven supervisory experience
  • Hands on management
  • High exposure to and ability to manipulate relevant payroll system
  • Advanced computer skills, usually requiring Excel or Lotus advanced abilities
  • Autonomy and initiative
  • Tenacity
  • Analytical

To successfully manage a payroll function means to achieve and exceed all of the positions requirements of the position utilising all of the skills and attributes listed above (and those of your particular position description).

A good payroll function lays good audit trails, through the use of finely tuned business systems that incorporate processing check points, explicit procedures manuals and organisational policies, which are legislatively compliant.  You will be consistently evaluating and pro-actively moving your payroll function forward towards ‘the ultimate payroll service’.

A professional Payroll Manager consistently identifies risks, reports those risks to management and addresses them within the scope of their role.  Risks in payroll management are ever-present, far-reaching and potentially damaging to cash flow, the share price & public perception, yet can be easily managed.

Properly managed and systemised, each payroll process can result in zero (or close to it) errors and be systemised to ensure it is produced in the most time and cost efficient manner possible.

Senior management will view a professional payroll function with the respect it deserves.  They will seek information from you and value what you provide.  You, as a professional, will have taken the time to understand what management require and how they intend to utilise the information.

The employees of your organisation will feel that they are respected.  They know you will be doing your best to respond to their queries.  They will hear the smile on your voice when they are talking to you and your team.  No matter how inane the enquiry may be, you and your team will treat them with the utmost respect.  Your external customers will be treated with the same respect, urgency and professionalism that you bestow upon your internal customers.

If you have any questions you would like to raise personally, please email Louise Vidler at The Professional Payroll Manager.

© 2012 Louise Vidler T/As The Professional Payroll Manager.  All rights reserved.

All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Louise Vidler T/As The Professional Payroll Manager. Louise Vidler T/As The Professional Payroll Manager authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Louise Vidler T/As The Professional Payroll Manager copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

%d bloggers like this: