Payroll legislation in Australia is a vast and complex area of law. It covers payroll administration, payroll records, payroll tax liability, and superannuation - to name but a few aspects.
Business owners must know how the payroll process works because even the slightest breach of your payroll obligations could result in severe penalties and harsh sanctions.
Unfortunately, most business owners operate under this misconception that payroll is just about paying your employees the correct amount of wage on time. But there is so much more to payroll.
Depending on which state and industry your business operates in, there are both state and federal legislation you must abide by to be payroll compliant, including Modern Awards, National Employment Standards, Single Touch Payroll, and payroll tax.
Your best bet at avoiding breaches and maximising payroll compliance is to be well informed of Australia’s payroll legislation and potentially work with a payroll professional. This article provides an overview of the legislative requirements of payroll in Australia, including your obligations and penalties for failure to comply with these obligations.
Australia’s National Workplace Relations System
Before delving into the specifics around payroll, you need to understand Australia’s current legislation around employment.
In Australia, most employment relationships are governed by the national workplace relations system - otherwise known as the Fair Work System - which the Australian government implemented using the Fair Work Act in 2009.
The Fair Work Act (and Fair Work Regulations) governs the minimum employment laws across Australia. Some key features of the Fair Work system include:
- 11 minimum National Employment Standards
- Modern Awards that apply to specific industries and occupations
- The national minimum wage
- Protection from unfair dismissal
While the Fair Work System governs the minimum employment standards for most Australian workplaces, some workplaces are governed by State and Territory Industrial Relations systems.
Make sure you are familiar with whether you are covered under the Fair Work system or by State/Territory legislation:
- Australian Capital Territory and Northern Territory
- Western Australia
- New South Wales
- South Australia
Australia’s National Minimum Wage
The national minimum wage, set by the Minimum Wage Panel, acts as a safety net for employees who belong to the Fair Work system by providing minimum pay rates for employees who are not covered by Modern Awards or Enterprise Agreements.
Beyond the general national minimum wage, the Minimum Wage Panel has set special national wages for:
- persons with disabilities,
- apprentices, and
The applicable national minimum wage is updated each year and published on the Fair Work website.
Modern Awards are industry or occupation-based minimum employment standards which apply in conjunction with the National Employment Standards.
The purpose behind implementing these Modern Awards was to create one established set of minimum conditions that can apply to all employers and employees across Australia who work for the same industries and occupations.
They cover minimum entitlements around:
- Base Rates of Pay
- Hours of Work
- Mandatory Breaks
- Penalty and Overtime Rates
From 1 January 2010, the current Modern Awards replace thousands of federal and state-based awards and cover most workplaces.
For example, the SCHADS Industry Award covers all employees who work in the following industries:
- crisis assistance and supported housing sector,
- social and community services sector,
- home care sector, and
- family day care scheme sector.
Unfortunately, these Modern Awards are riddled with complex legal jargon and are a minefield for employers to navigate.
So, Pay Cat has drafted several eBooks for various Modern Awards that aim to simplify the interpretation process.
Registered Agreements (Enterprise Agreements)
Enterprise Agreements and other Registered Agreements contain employment terms and conditions that apply to one business or a group of businesses. For example, most government organisations are governed by Enterprise Agreements (EBA).
When a workplace has a registered agreement, a relevant Modern Award will not cover the employers and employees. However, the agreed-upon employee pay rates can’t be less than the minimum pay rate prescribed in the relevant Modern Award and the National Employment Standards.
Western Australia State Awards
Similar to the national Modern Awards, Western Australia has their own state Award system in place. The Awards apply to employers and employees in Western Australia, including:
- Sole traders
- Unincorporated partnerships
- Unincorporated trusts
- Some incorporated not-for-profit organisations
The Government of Western Australia have provided a comprehensive guide to establishing whether your business belongs to the state system or the national system - so make sure to check it out if you’re unsure. However, as a general rule, Pty Ltd companies operate under the national Fair Work System.
Terms and Conditions of Employment: National Employment Standards
They provide a safety net for all employees in the national workplace relations system. No employment contract can provide for less than these entitlements.
- Maximum weekly hours of work of 38 hours for full-time employees or less for part-time/casual employees. Employees can refuse to work additional hours if they are unreasonable.
- Flexible working arrangements such as hours, patterns or location of work if you’ve been working with the same employer for 12 months or more
- Offers and requests to convert from casual to permanent employment
- Parental leave for when an employee’s child is born or adopted
- Paid annual leave of 4 weeks based on full-time or part-time employees’ ordinary hours of work
- Personal/carer’s leave, bereavement leave and unpaid family and domestic violence leave
- Community service leave
- Long service leave - this is dependent on which state the employee works in
- Public holidays - this is also subject to which state the employee works in
- Notice of termination of employment and redundancy pay
- Employees must be given a copy of the Fair Work Information Statement.
As an employer, you are obligated to contribute a minimum of 10% of an employee’s earnings to a complying super fund or retirement savings account at least four times a year.
Exemptions: Superannuation Contributions
While limited, there are some instances where an employer doesn’t have to make superannuation contributions, including:
- where employees are paid less than $450 per month (or $350 per month for employees covered by the Hospitality Award),
- where your employees are under the age of 18 and don’t work more than 30 hours per week,
- where you (as a non-business employer) pay someone to do private or domestic work for not more than 30 hours per week, and
- where your employee already has vested benefits in excess of their pension RBL and has elected not to receive more employer contributions.
One thing you should know about the Fair Work Ombudsman is that they can come knocking for records at any time - and those records (including time and attendance and pay records) must be accessible for a minimum of at least seven years.
When it comes to your superannuation obligations, record keeping is just as important. You must keep adequate records showing the amount of super you paid for all your eligible employees. Your records should include:
- how you calculate any reportable employer super contributions,
- how you calculate each of your employee’s salary or wages and ordinary time earnings,
- copies of the relevant salary sacrifice agreements you entered into with your employees,
- copies of relevant industrial agreements with your employees, and
- Evidence that you have offered your eligible employees a choice of super fund.
Single Touch Payroll
After the Federal Budget Speech in 2018, the Australian Tax Office introduced a regime called Single Touch Payroll (STP) which requires employers to report all their wages (and salaries) paid on a regular basis.
The idea behind STP, however, was to streamline the reporting process. So, instead of having multiple reporting processes that run throughout the year, businesses simply have to have to employ STP-enabled software that will report their tax and superannuation information to the ATO each pay run.
To keep this process as efficient as possible, you’ll want to consider implementing cloud payroll software with the STP-enabled functions so that you can process, report and produce payroll processes all within a single platform.
The PAYG system simply requires employers to withhold income tax from an employee’s wages or salary and pay that directly to the ATO.
It’s worth noting your PAYG obligations extend to all aspects of your employee’s pay conditions including allowances. Our allowance database (which breaks down every Modern Award allowance that your employee is entitled to) makes it easier to establish when you have PAYG and superannuation obligations in relation to employee allowances.
When your total wage bill exceeds the threshold amount set out about the state or territory, you’ll need to pay a percentage of this as payroll tax.
For example, New South Wales’s current payroll tax threshold (2021 -22) is $1.2 million, and the tax rate is 4.5%. So, if you operate your business in NSW and your wages exceed the threshold amount, you’ll have to pay tax on the total amount after $1.2 million.
Suppose you’re running a business in multiple states. In that case, you’ll need to ensure you register for payroll tax if your total Australian wages exceed a particular monthly threshold according to the payroll tax laws in a specific state.
The state and territory revenue offices conduct ongoing audits and investigations to ensure that payroll tax compliance is met.
You can visit the Payroll Tax Australia website for more information, where they harmonise payroll tax information.
How Do You Ensure Payroll Compliance With Your Obligations?
Unfortunately, manual payroll processes have proven time and time again to be highly inefficient when it comes to guaranteeing payroll compliance and observing payroll laws.
Beyond that, it’s nearly impossible to keep up with the constantly developing area of Fair Work legislation: the Modern Awards. One wrong step would not only result in severe penalties but a heavily publicised media release on Fair Work’s website.
Switching to cloud payroll software will have significant benefits in streamlining your payroll compliance process, meeting your superannuation and payroll tax obligations, and applying the Modern Award and National Employment Standards’ pay conditions.
If you would like to know more about cloud payroll software and how it can help you navigate payroll compliance, make sure to check out these benefits.
However, if you’re looking to access a more in-depth look into what this legislation entails for your business, we’ve created an online payroll course, where we provide a detailed look into all aspects of payroll legislation so that you can keep up with changes and stay on top of your obligations.
It would be useful for you to conduct a payroll audit to see where your business is at with payroll compliance and efficiency. We’ve created a guide on how to navigate a payroll audit - plus there is a checklist you can use.
Or, if you would prefer to take some weight off your shoulders and have your payroll compliance completely automated, you can make the shift over to cloud payroll by engaging us to help you transition from a manual to a cloud system seamlessly.
Here’s how cloud payroll works:
- NoahFace Time and Attendance
Employees clock their time using the NoahFace Time and Attendance system that syncs all data with your cloud payroll software.
- Live Timesheet Approval
No more manual entries or paper timesheet approvals. Supervisors and managers approve time and attendance on the go directly on the cloud payroll software.
- Automated Modern Awards Compliance
A collection of “rules” based on the Modern Awards is implemented into your cloud payroll software that automatically calculates pay points and conditions (penalties, allowances, shift work, and more).
- Automated Payslips
Payslips are automatically generated that comply with the Modern Awards.