From the outback to the city: Simplifying Australian payroll
Cloud-based payroll is the way forward for Australia's notoriously complex payroll systems
“The hardest thing in the world to understand is the income tax," according to Albert Einstein. Except that payroll – on which the tax is calculated – is probably harder to understand in Australia than most other developed countries.
The “lucky country” is blessed with abundant resources, great outdoors and four of the world’s safest banks. It is a great place to live and work. But for managers who have to handle payroll, it is a highly complicated endeavor, which leaves many perplexed if not frustrated.
Australia has 24 million people spread out over six states and various territories covering one of the world’s largest landmasses. By quirks of history each of the six original colonies developed their distinct tax systems revolving around the collection of customs and excise duties. Tax collectors were driven by administrative demands rather than equity or efficiency.
Each state had to meet its own statutory needs with their own payroll taxation. Payroll managers must deal with several criteria for computing taxes on different employee payments, just to calculate taxes for one state. In the 21st century this has emerged as a nightmare for corporations with employees in several states. More so as the deadline looms to implement SuperStream, a single channel to make superannuation contributions electronically. Under this major Australian Tax Office efficiency reform, all companies with 20 or more staff members must migrate to the new system by July 2015; those with 20 or fewer staff have to do so a year later.
Australia levies tax at three levels: federal, state and local government. Payroll taxes for Australian businesses are levied at the state level and can vary. Current PAYG (Pay as You Go) computation accounts for Exemptions from Medicare Levy, HELP and SFSS debts, Superannuation Contributions and Tax Offsets applicable.
These only form the tip of the iceberg – there are even more taxes with various clauses and conditions, with which payroll must comply. For example, taxes on Termination payments are calculated with different rates, with further factors such as mode of termination, employee's age, the number of years in service, and payment type. Calculating tax on unused leave payments and fringe benefits can be similarly complex, as the employer bears the cost of fringe benefit taxes. As the Australian Payroll Association notes, there are over 50 things to keep in mind just to correctly calculate and tax an employee's redundancy payment.
Another key aspect of Australian payroll is the Enterprise Bargaining Agreement (EBA), a collective industrial agreement between an employer and a trade union, or an employer and employees acting individually. EBAs benefit Australian employers who want to determine the terms of their business; they improve flexibility when deciding ordinary hours, flat rates of hourly pay, and performance conditions, among others. On the employee front, EBAs ensure higher salaries, additional leave and more enhanced entitlements than standard employment contracts.
How does the HR or payroll manager navigate this complex landscape to streamline processes – all against the backdrop of the SuperStream deadline?
There is only one answer: corporations need to harness the power of technology and shift its entire payroll management from a myriad of legacy systems to the cloud. A comprehensive cloud-based payroll system can address at one go most of the issues payroll managers face: automatically updating new tax codes to meet compliance guidelines and ensuring employees get paid on time regardless of location. No longer tied to an office location, such a cloud-based system will notify each employee of his salary via an update on his mobile phone, whether he is working in a mine or surfing on Bondi Beach.
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