Human resources is a deep and complex area. It ranges from engaging team culture to HR compliance with a range of Fairwork, tax, super and compliance obligations. And while the use of cloud accounting programs like Xero payroll, together with add-on programs like EmploymentHero and KeyPay are spectacular we still see a range of common mistakes that businesses across Perth make that disrupt their overall HR and payroll departments.
If you are considering hiring staff internationally however the following tips will not apply. They only apply to the Australian employment obligations – including Perth.
Long service leave starts with one day
Long service leave does not accrue gradually over the employment life span of a staff member. An employee has no entitlement to long service leave if they have worked less than 7 years, and on the day they have worked 7 years: the employee is then entitled (on cessation of employment) to 6.07 weeks of pay. And that event happens on one day.
So if an employee is earning $120k (plus super) the single day of employment from 6 years and 364 days to 7 years will create an additional cost of employment of $14k. So the accounting of that single day can create significant fluctuations with a business’s gross profit and net profit ratio’s as the large single cost items hit the profit and loss.
Rather than have a profit and loss with a regular series of one-off LSL events many business owners start accruing the cost of long service leave from the 5th year of employment until the 7th year of employment so that the net ratio’s are consistent and the true cost of employment understood.
The cost of superannuation can be double
As an employer you must pay superannuation for your staff. And the superannuation must be paid at least 28 days after the end of each quarter (so 28 October, 28 January etc).
If you accidentally forget to pay the superannuation by the due date you will no longer enjoy a tax deduction for the staff superannuation. So for a company paying tax at the rate of 30% the loss of the tax deduction will effectively mean that $10,000 of late superannuation paid will be $14,285 ($14,285 x 30% = $4,285)
Together with this the penalties of paying staff superannuation late and not providing the Superannuation Guarantee Charge form can be 200% of the original superannuation.
As tax accountants we will recalculate the superannuation obligations for every business client including the payment dates. And while that is not necessary simply to complete a tax return – our full tax advice approach is to ensure that an ATO audit will be protected: and that includes more than just income tax.
Using contractors does not get you out of HR
Many medium sized businesses are using contractors in their business. However, simply engaging a contractor does not necessarily mean that you don’t have a superannuation problem.
If you employ a contractor, and the contractor is a person who is mainly providing their own labour you, as an employer have a superannuation issue for them.
Payroll tax applies to family members
A family business will often have multiple family members employed. And the payment of salaries to family members will also attract payroll tax just like if you employed a third party.
A common approach for many family business owners is to consider reshaping the remuneration of family members from salaries to dividends and profit payments which don’t attract payroll tax. Of course, this HR trick of reducing the cost of employment also needs to be compared to the benefits of paying a clear salary – especially if you are talking about second and third generation family members who do not have an ownership interest in the business.
Failure to withhold tax is a big issue
As an employer you have an obligation to withholding PAYG Withholding Tax from your team members. However the temptation for some business is to not withhold tax from the salaries paid to the team member (especially family members).
If you do not withhold PAYG Withholding Tax from your team: you lose the ability to claim a tax deduction on your wages. So while, at times like termination, it can be tempting to short pay the employees tax withheld – getting it done properly means you can claim the tax deduction for the wages paid to your team members.
At Westcourt we are committed to tax compliance for founder led family-owned businesses. And we understand that taxation and human resources goes together. Our advisory services from managed payroll, salary packaging, SMSF and significant advice creates real world value to business owners and their families. And given our international reach, single focus, upfront pricing and technical excellence we are a natural choice for Perth businesses to choose when looking for an accountant – so why not give us a call?
