How to meet your employer obligations
We want to help you ensure your entity's payroll governance measures are designed effectively and fit for purpose. This means they are appropriate for the entity's structure, size, complexity and industry.
To meet your payroll obligations, you should ensure:
- a formal payroll framework is documented that includes descriptions of roles and responsibilities to implement policies and procedures
- systems and controls are in place and periodically reviewed to ensure accurate reporting of:
- Single Touch Payroll (STP)
- pay as you go (PAYG) withholding
- fringe benefits tax (FBT)
- super.
- appropriate processes and procedures are in place to support your obligations and identify, assess and mitigate risks such as employee fraud and cybercrime
- key payroll and accounting staff have the skills and knowledge to perform their role – if they are in different departments, they should each be aware of the scope of their function and responsibilities
- good record-keeping practices are in place.
Understand your employer obligations
When starting a business, ensure all remuneration arrangements including PAYG withholding, FBT and super guarantee (SG) are:
- set up correctly in your payroll software
- comply with payroll administration requirements.
Routinely review your policies and procedures for any changes that impact your business. For example:
- Operating without required registrations and failing to report or lodge on time may attract our attention and incur interest and penalties.
- Understand PAYG withholding thresholds that may change your payer status from a small-medium withholder to a large withholder because this determines the frequency and method of reporting and paying.
Common issues with payroll governance
We have observed these common issues with payroll and governance. We encourage you to review your existing frameworks, practices and processes with these points in mind.
STP reporting and its relationship to BAS W2 and PRN EFT 70
You must report payroll information through your STP-enabled software. This gives us visibility of your payroll data. It does not raise your PAYG withholding liability to account.
If you are a small-medium withholder, you must:
- lodge your STP reports
- continue to notify your PAYG withholding amounts at BAS label W2.
If you are a large withholder, you must:
- lodge your STP reports
- continue to notify your PAYG withholding amounts using your Payment Reference Number (PRN) / Electronic Funds Transfer (EFT) code 70.
Payment Reference Numbers (PRN), Australian Business Number (ABN) and branch numbers
Ensure you report your PAYG withholding amounts correctly based on your business structure, including:
- ABN
- branch
- PRNs.
When consolidated groups are restructured or government entities are grouped, the responsibility for payroll often passes from one related entity to another. It is important to update your payroll software with the new entity’s ABN and PRN. This ensures PAYG withholding payments are correctly applied.
When an employer’s withholding threshold requires a transition into the large withholder system, reporting and payment are done via a unique PRN. Update your payroll software with this PRN and use it every time a PAYG withholding amount is remitted. This ensures it is correctly applied and not against another tax type or account.
Discrepancies between PAYG withholding amounts paid and reported
STP data provides us with a near real-time indicator of what your PAYG withholding obligations should be. There are often significant discrepancies between lodged STP reports and PAYG withholding amounts paid. This suggests a potential for PAYG withholding shortfall.
Where PAYG withholding is unpaid over several years:
- manually raised backdated PAYG withholding amounts can be significant
- it attracts general interest charge (GIC).
You should routinely undertake a reconciliation of payroll totals to compare PAYG withholding amounts paid against reported year to date STP data and BAS W2 totals.
A year-end reconciliation will verify if your PAYG withholding amounts paid during the year equal the reported STP finalisation declaration. This is extremely important because these STP totals are prefilled into your payee’s individual income tax returns.
Payroll Service Providers (PSP) issues
If you use a third-party provider to submit your payroll data, regularly communicate with them to ensure all your obligations are being met.
We see a lack of communication between employers and their PSPs can cause issues, including when PSPs:
- report and pay PAYG withholding late without letting their employer client know
- incorrectly report under their own ABN and not the employer’s – this causes significant discrepancies.
Ensure roles and responsibilities are clearly defined and it is understood who is accountable for payroll administration.
How employers can understand and meet their payroll obligations and some of the common issues we see.