What All Start-Ups And SMEs Need To Do To Avoid A Million Dollar ATO Fine

In August this year, the ATO released some staggering figures around compulsory superannuation payments: that over the past eight years, somehow, employees have been short changed a total of $17 billion.

There is no doubt that this is a shocking oversight, and an extremely costly one at that.

But while it can be easy to blame businesses for wilfully depriving employees of their 9.5 per cent super guarantee payments, the reason for this type of noncompliance, at least for the many SMEs I know and work with, is rarely (if ever) malicious intention.

As Australia’s technology start-up culture ramps up, entrepreneurs emerge who want to enter, and reform, industries such as the extremely diverse and lucrative financial sector. Due to this explosion of innovation, advances in cloud-based platforms in particular have resulted in more choices for small businesses, including the option to outsource payroll services to third party providers for a fraction of the cost (compared to in-house).

In the past, SMEs would have to fork out top dollar to accounting firms to manage and order their payroll data; today, they have hundreds of payroll providers at their fingertips, all vying for their business and offering all sorts of enticing deals.

And while this all sounds great from the cost-cutting perspective, it’s never been more imperative that businesses take a VERY close look at exactly who they have hired to manage their payroll and superannuation obligations.

The fact is, a poorly managed payroll can, at best, cause an admin nightmare, and at worst, literally bankrupt your business. Just look at the mess George Calombaris found himself in earlier this year after the Fair Work Ombudsman found instances of unintentional underpayment and all sorts of other payroll issues within his restaurant businesses, costing him $2.6 million in payouts.

The federal government’s response to the this $17b superannuation gap has been to set up an

ATO superannuation task force to crack down on employer noncompliance. The ATO has since decided that from July 2018, all Australian businesses with 20 staff or more will be legally obliged to provide the ATO with data every time they pay their employees under a scheme called Single Touch Payroll (STP) (this will be July 2019 for businesses with less than 20 staff).

This means that all businesses will have to use a digital payroll solution requiring them to report all salary information, including wages, deductions and super information to the ATO all at the same time.

This is significant in many ways. At the moment, the ATO only has the capability to perform random manual checks on the accuracy of payroll data supplied to them, meaning that only a very small percentage of businesses can be audited.

However, once all companies are using an STP compliant system, payroll and super data is going to become fully automated and simple for the ATO to check. Mistakes will be caught much quicker, and any businesses who are overpaying or, in particular, underpaying their employees could be asked to immediately explain anomalies or risk being slapped with fines as much as 200 per cent of the incorrect data.

So, as a small business with limited funds, what can you do to ensure you don’t get slapped with a massive fine?

Talk to your payroll provider NOW.

As a small-business owner, you need to know the answers to the following questions:

● How will your payroll provider update the payroll system to respond to these changes?

● How will they receive possible warning messages about any potential noncompliance regarding super payments to employees from the ATO?

● How would they deal with a potential red flag message?

● How quickly would they alert you?

If your payroll provider cannot answer you immediately, you should consider searching for one who can.

Do a review of your current payroll data

Print out a report of all your payroll data right now and look for any anomalies. If not everyone in your company is getting paid 9.5 per cent super or more (which could be explained by salary sacrifice, but still needs to be checked), you may have a big problem on your hands.

Find out how often your payroll provider conducts checks

SuperChoice conducts more than 200 data checks every time a client uploads a super file. This can be monthly or quarterly. It’s important to check how often your payroll provider is checking company statistics, and if they’re being careful.

At the end of the day, every company with more than 20 employees has to have payroll updates in place to be fully prepared by next July. It will take some time to implement changes (both to systems and business processes) and to ensure all your payroll data is correct.

Otherwise, any breach — no matter how accidental or minor — may result in a fine, and no business needs that.

By Stuart Korchinski

Business Review

17 November 2017

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