Payroll is the heartbeat of any organisation.
It’s the essential process that ensures your employees receive accurate and timely compensation for their hard work. However, as important as Payroll is to your business, managing Payroll can be a tedious and time-consuming task – especially considering Australia has one of the most complex Payroll and taxation systems in the world.
A lapse in Payroll management can lead to serious legal and financial consequences, not to mention significant damage to the reputation of your business.
It is imperative for all businesses, big or small,
to handle their Payroll responsibilities with
utmost efficiency and precision.
To help you do just that, we’ve compiled The Dexterous Ultimate Guide to Outsourcing Your Payroll Function.
In this comprehensive guide, we’ll:
- help you grasp a solid understanding of what Payroll is,
- highlight why it’s a non-negotiable aspect for every business,
- the additional ROI opportunities Payroll can offer, and
- take a deep dive into all things Payroll and Payroll outsourcing.
After this, we will also:
- unpack the many different ways businesses can manage Payroll,
- explain why outsourcing might be the right solution for your business, and
- demonstrate the steps you need to take to seamlessly integrate an outsourced Payroll department into your business operations.
Our goal is to prepare you to navigate all of your future Payroll needs with confidence and ease, especially if that future involves an outsourced Payroll solution.
- What is Payroll as a business function?
- The Payroll professional: qualifications and experience.
- Australia’s Payroll rules and regulations.
- The CEO/Director role in Payroll.
- The consequences of poor Payroll practices.
- Payroll Strategy: is it a value driver or a cost centre?
- Why you should consider Payroll outsourcing.
- The benefits of outsourcing your Payroll.
- Different methods of outsourcing Payroll.
- Why Choose Dexterous?
Part 1: Understanding Payroll
What is Payroll as a business function?
Payroll is a critical business function that involves managing and processing employee compensation and entitlements.
The primary goal of the Payroll function is to ensure that a business’ employees receive accurate and timely payments. As a result, the function typically involves (but is not limited to) the calculation and handling of:
- tax deductions, and
- other withholdings.
However, beyond simple payments and transactions, the Australian Payroll function also encompasses compliance with tax regulations, benefits administration, meticulous reporting, and employee data management.
So, as you can see, Payroll encompasses an extensive range of complex processes and highly business-critical procedures. Not only that, but it relies on maintaining meticulous records and is essential for businesses to maintain legal compliance, employee satisfaction, and overall organisational stability.
In other words, Payroll is a fundamental aspect of every modern-day Australian business operation, and its complex importance needs to be appreciated.
The Payroll professional: qualifications and experience
Payroll professionals or Payroll officers drive the smooth and accurate functioning of an organisation’s Payroll function and oversee all of the responsibilities associated. As a result, Payroll professionals must have the relevant qualifications and experience necessary to complete this role effectively.
Typically, individuals in Payroll officer positions hold qualifications in:
- accounting, or
- related fields.
A formal educational background in these areas equips them with a solid foundation in financial skills, principles and best practices as well as general knowledge surrounding the inner workings of a business.
Professional certifications, such as Certificate IV in Payroll Administration and the Diploma of Payroll Management, Chartered Accountants Australia and New Zealand (CAANZ) and Certified Practicing Accountants (CPA), can also be attained to further validate a current or aspiring Payroll professional expertise and boost their understanding of the many Payroll intricacies.
Beyond formal qualifications, experience in Payroll processing, tax regulations, and compliance is also highly valued and is often an indication that a given Payroll professional is on par with, or ahead of the current industry standard.
The role of a Payroll professional also requires individuals to:
- Stay abreast of evolving Australian laws, regulations and industry standards to guarantee adherence and mitigate legal risks.
- Achieve proficiency in Payroll software and demonstrate advanced Microsoft Excel skills.
- Display effective communication skills and possess a keen attention to detail as they often interact with a combination of employees, management, and regulatory bodies consistently.
- Express empathy and emotional intelligence, particularly when talking to employees when they are unwell or experiencing personal difficulty.
- Deliver clear and actionable information when advising employees of company policies.
In essence, the role of a precise and efficient Payroll professional demands a blend of formal education, additional certifications, and hands-on experience.
Australia’s Payroll rules and regulations.
Adherence to Australia’s extensive Payroll regulations and best practices is crucial for businesses to maintain legal compliance, foster transparent relationships and preserve a strong business reputation.
As intricate as they are, the best way to categorise these Payroll regulations is into:
- Payment obligations, and
- Taxation and superannuation obligations.
Beneath these two categories, however, are a variety of (often tricky) record-keeping obligations, reporting requirements and other legal responsibilities that are designed to ensure transparency, regulatory compliance, and ultimately the provision of accurate information to relevant authorities, especially in the case of an audit or legal proceeding.
So, let’s look at the Australian laws governing each of these broader categories.
Payroll Payment Obligations:
In short, payment obligations refer to the legal and contractual responsibilities of an employer (via their Payroll department) to provide accurate and timely compensation to their employees. Of particular note are:
- Leave entitlements:
Under Australian law, full-time employees are entitled to a minimum of four weeks of paid annual leave from their Payroll department as an effort to encourage work-life balance and sustainable working conditions. Beyond this, additional leave provisions include items such as personal leave, carer’s leave, and compassionate leave.
- Minimum wage standards:
Australian Payroll professionals must also be aware of the minimum wage standards which are governed by the Fair Work Act, ensuring that Australians enjoy fair compensation for employees across diverse industries. The Fair Work Commission often updates minimum wage rates, so Australian Payroll professionals and business administrators must remain consistently informed.
- Awards and enterprise agreements:
Australia’s regulators mandate adherence to the rules surrounding Awards and Enterprise Agreements, which Australian Payroll professionals must be aware of. In short, while Awards outline industry-specific minimum employment standards that must be met, Enterprise Agreements (EBAs) are negotiated arrangements between the employee and employer that formalise a similar set of business-specific standards that must be adhered to.
- Overtime and penalty rates:
In Australia, Payroll regulations state that overtime rates apply for hours worked beyond standard working hours, including evenings and weekends. Similarly, penalty rates can come into play for work performed on public holidays, guaranteeing additional compensation for employees during these special circumstances.
Australian Taxation and Superannuation
- Withholding taxes:
Australian Payroll regulations require employers (via their Payroll function) to withhold income taxes from employees’ wages. This is called pay-as-you-go (PAYG) withholding tax and the accurate calculation and timely withholding of these taxes is essential for Payroll compliance.
- Superannuation contributions:
Employers, again via their Payroll professionals, are mandated to make regular contributions to compliant superannuation funds on behalf of their employees. Here again, timely and accurate reporting of superannuation contributions is crucial to maintaining compliance.
- Fringe benefits tax:
In Australia, the Fringe Benefits Tax (FBT) is applied to non-cash benefits provided to employees such as Christmas gifts. Given the intricacies of laws surrounding this area, your Payroll function must be educated thoroughly and equipped to deal with changing conditions.
- STP compliance:
Single Touch Payroll (STP) is an Australian Government initiative that was designed and implemented to streamline employers’ reporting to government agencies. With STP your payroll function reports employees’ payroll information to the relevant bodies each time you pay them through an STP-enabled software.
Albeit a helpful system, it is still worth noting that STP also comes with a strict set of obligations and associated penalties. According to the Government’s ATO website:
“If Australian businesses haven’t commenced STP reporting or haven’t transitioned to STP Phase 2 reporting and you aren’t covered by a deferral or exemption, you may be subject to failure to lodge (FTL) penalties.”
The CEO/Directors’ Role in Payroll.
In Australia, Payroll obligations and processes are generally managed and handled by a Payroll officer within the financial department of a business.
However, as the leader of a company, CEOs and Directors share the responsibility to ensure that Payroll obligations are met, as it directly impacts the success and ultimately compliance of the company.
This requires CEOs and Directors to consistently engage in productive communication with the business’ finance and Payroll department to ensure their Payroll practices align with legal, financial and ethical standards.
Generally speaking, the CEO, CFO, General Manager (GM) or Director of a business is tasked with ensuring:
- Compliance oversight:
Even if they are not directly working in the Payroll function, CEOs and Directors must be confident that all Australian Payroll regulations, including minimum wage standards, leave entitlements, and tax and other obligations are met.
A quality finance function should be reporting to the CEO, rather than the CEO having to seek the information themselves which requires Payroll officers to liaise with their business leaders and inform them about legislative changes.
- Strategic decision-making:
CEOs and Directors must collaborate with their CFO, Payroll officer and or finance department to make informed decisions regarding Payroll processes. This includes any technological advancements and system implementations such as outsourcing that enhance efficiency and accuracy.
- Risk management:
CFOs and business leaders must be proactive to identify and respond to any risks associated with their business’ Payroll processes, such as non-compliance issues or errors that could result in financial penalties. This includes checking and monitoring the work of the business finance function to ensure internal controls are developed and followed and overseeing the allocation of wages, benefits, and superannuation.
- Communication with employees:
Though not a legal obligation, CEOs and Directors have an ethical obligation to facilitate clear and consistent communication with their employees regarding their pay and also pay attention to surrounding matters to foster trust and positive workplace culture.
The consequences of non-compliant Payroll practices.
Non-compliance with Australian Payroll regulations will lead to severe penalties that come in a variety of forms.
But beyond Director penalties and legal actions, non-compliance also impacts the financial stability, reputation and culture of the business in question, hence the importance of having a proficient Payroll function that is professionally managed on a consistent and long-term basis.
Primarily, most Payroll breaches will be handled by The Fair Work Ombudsman (FWO) and the Australian Taxation Office (ATO) who work together to bring legal action and impose penalties and sanctions across the many different aspects of the Payroll function.
Importantly, while the FWO cannot impose sanctions directly, they can investigate matters and apply them to the Administrative Appeals Tribunal (AAT) for direct legal proceedings to be taken.
Ultimately, the consequences of Payroll non-compliance may include:
- Fines and monetary penalties
State and Federal agencies, including each state Payroll Tax body, the ATO or the courts, can impose fines for breaches of Payroll requirements relating to:
- minimum wage requirements,
- leave entitlements,
- overtime rates,
- penalty rates,
- unfair dismissals,
- breaches in Superannuation rules,
- and many other Payroll responsibilities.
Of course, the exact penalties that are eventually handed down will depend on the nature and severity of the non-compliance.
- Tax-related penalties:
Non-compliance with Australian taxation obligations, such as the incorrect withholding and remittance of Pay As You Go (PAYG) taxes, can likewise lead to significant penalties imposed by the ATO. For this reason, it’s important to note that PAYG is remitted through your monthly IAS or BAS or immediately after each payroll if you are a large withholder.
Depending on the duration and extent of the non-compliance these penalties may include:
- monetary fines,
- interest charges, or
- administrative penalties.
- Legal consequences and court orders:
The Fair Work Ombudsman has the government-granted authority to initiate legal action against businesses that have breached Payroll regulations outlined in the Fair Work Act. If found guilty, these actions may lead to court orders requiring businesses to rectify their non-compliance and potentially even pay additional financial penalties.
- Reputational damage:
Beyond these legal and financial penalties, non-compliance with Payroll regulations can have significant reputational consequences for a business, pointing to the importance of a well-managed finance department.
Negative publicity related to wage theft, unfair treatment of employees, and general non-compliance with legal obligations is often widely reported and can (as it has many times) lead to a loss of trust and strained relationships. As a result, you must manage your Payroll obligations with precision.
Moving forward, regulations regarding the improper administration of Payroll responsibilities are likely to be dealt with much harsher.
Proposed Payroll Penalty Changes in Australia
On 4 September 2023, the Federal Government introduced a Bill to Parliament titled the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 (Cth) (the Bill).
Among a long list of proposed changes, one of the most significant sections of the Bill (which is a proposed law) is the criminalisation of wage theft.
In other words, Directors who fail to meet payment obligations could face criminal charges if the Bill is passed.
Payroll Strategy: is it a value ROI driver or a cost centre?
Payroll is often viewed by default as a cost centre, that is, a division of the business that doesn’t add value to the business but instead consumes valuable time and resources.
That’s not surprising, given that Payroll functions are typically routine and reactive. They’re never given the opportunity to do much more than process payments.
However, if managed appropriately, this doesn’t need to be the case. In fact, a proactive and well-informed Payroll function can actually contribute to the bottom line and mitigate costly scenarios, saving the business money.
Efficient payroll management means that the department can become far more than just a mere administrative function; it can contribute significantly to:
- employee satisfaction,
- employee engagement, and
- overall organisational success.
For instance, by fostering a culture where employees are rewarded in a timely and accurate manner, and where the Finance Function provides greater insights for more informed decision-making, Payroll can directly promote an improved workplace culture, support talent retention and boost productivity, quickly becoming a value-adding component of any business.
By implementing efficient and effective processes,
the Payroll function transforms from a routine task, into a strategic asset and a source of competitive advantage.
All the more reason to approach Payroll the right way!
The question is, what is the RIGHT way to ensure that your Payroll efforts are precise, efficient and compliant moving forward?
For many businesses, the answer is simple: Outsourcing your Payroll function.
Continue to part two for a complete guide to what this entails.
Part 2: Outsourcing Payroll
What is outsourcing Payroll?
Payroll is a complex system and an ever-evolving staple of the Australian business function.
While there are several unique and varied ways to approach
Payroll responsibilities, at Dexterous, our philosophy
is that intricate business processes are best solved
in the hands of skilled professionals.
For that reason, we favour an outsourced Payroll function.
Outsourcing Payroll is the strategic decision to delegate the management of your business’ Payroll function to an external service provider.
This means that instead of handling the hefty responsibilities associated with ensuring timely and accurate Payroll in-house, businesses entrust skilled and competent external providers to complete these responsibilities on their behalf.
Outsourcing Payroll means the transfer of all of the responsibilities of the typical Payroll professional or Payroll department such as salary calculations, tax deductions, and superannuation contributions.
This decision to outsource Payroll can:
- streamline business operations,
- reduce administrative burdens, and
- mitigate the risks associated with regulatory non-compliance,
allowing businesses and their teams to focus on core business activities.
However, this does not mean you will have
outsourced your director’s and business’ liability
in the case of non-compliance.
So the decision about whom to outsource Payroll to should not be made lightly.
To help guide your decision, here’s everything you need to know about outsourcing your Payroll.
Why you should consider Payroll outsourcing
Outsourcing your Payroll function offers a variety of advantages for Australian businesses. This is particularly due to the fast-moving, technology-leading world of business that we’re currently experiencing.
Ultimately, the decision to outsource your Payroll function is a strategic move that allows you to:
- focus everyone more on what they do best, and
- adopt best practice processes by working with industry leaders.
Outsourcing your Payroll function enables you to centralise your efforts on mission-critical activities, improving productivity, as well as benefit from the wealth of insights and best practice automation that external Payroll experts can provide.
By moving away from manual, often archaic processes and exposing your business to new ways of doing things, your business no longer needs to rely on one directly employed individual and the resourcing constraints that often arise in the case of sick and annual leave.
Instead, your Payroll function will operate effectively year-round, improving the employee experience, minimising bottlenecks and eliminating unnecessary costs and inefficiencies.
To this end, outsourcing your Payroll function is a
smart way to transform it from a cost centre
to a value-adding component of your business.
As a result, the move to an outsourced Payroll solution is quickly growing in popularity, especially for businesses that have outgrown their finance department.
- enhances operational efficiency,
- fosters a culture of focus (instead of distraction), and
- reduces the risk of non-compliance.
But beyond financial and resource considerations, outsourcing Payroll also introduces a forward-thinking, proactive business philosophy that empowers organisations to streamline their processes and thrive in today’s agile business environment.
Key benefits of outsourcing Payroll
Here are some of the more specific upsides of the decision to outsource your Payroll responsibilities:
- Access to expert talent:
Depending on the outsourcing solution you choose, an outsourced Payroll service provider, like our team at Dexterous, specialises in Payroll management and so, is constantly keeping up to date with both the complex and ever-changing tax regulations and compliance requirements.
- Mitigating key-personal risk:
Outsourcing Payroll also mitigates key person risk by reducing your business’ dependency on a single or small number of internal individuals. With a specialised team working year-round, an outsourced payroll function minimises disruptions in the case of employee turnover or absence, particularly during holiday periods.
- Access to an entire team:
Outsourced payroll services can offer your organisation access to a dedicated team who are well-versed in a variety of industry awards and equipped with advanced Payroll software. This ensures compliance, accuracy and efficiency when it comes to your business’ payroll processing needs.
- All-encompassing collaboration:
Outsourcing maintains seamless collaboration between your organisation and your payroll service provider. This integration ensures your Payroll function does not operate as a silo, instead allowing for real-time updates and ongoing feedback from a team of trusted experts.
- Breadth of experience:
As specialists, outsourced Payroll departments offer a wealth of relevant experience gained from their work with multiple diverse clients. This breadth of knowledge allows your organisation to benefit from best practices, up-to-date industry insights and innovative solutions, optimising their payroll processes and staying ahead of regulatory changes.
That said, it’s important to recognise that outsourced payroll solutions come in all shapes and sizes and will differ significantly in terms of the extent of services they offer – let’s take a look.
Methods of outsourcing Payroll
Outsourcing Payroll can be a strategic decision for businesses looking to streamline their processes, however, there is no one-size-fits-all approach and the route you take will largely depend on the nature and needs of your business.
The goal is to find a balanced payroll option that best suits your organisation.
Here are several different ways you can outsource the Payroll function of your business and some helpful things to consider:
- Internal personnel: Asking a member of your finance or HR team who understands your internal culture to complete payroll responsibilities does add variety to their workload, and offers the chance for them to upskill in their capabilities. However, if you decide to take this route, it’s crucial to ensure they receive ongoing mentoring and compliance training and that you are wary of managing key person risk in the case of absences.
- Individual freelance Payroll professionals: These one-person providers are generally ideal for businesses with relatively straightforward or ad-hoc Payroll needs, however, it’s important to be wary of the key personnel risk that may arise as a result as well as other shortcomings similar to an internal Payroll function.
- Accounting firms: As your business grows, you may turn to your accountant to look at some of your internal finance needs, like Payroll, however, often larger accounting firms will refer you to an outsourced finance specialist. As such, this is an option that is largely dependent upon circumstances.
- Payroll platforms: Another option growing in popularity is Payroll software providers who are capable of simplifying your payroll needs but tend to focus on the software licensing and implementation side, rather than providing hands-on Payroll assistance.
- Offshore Business Process Outsourcing (BPO): This is a great solution for those seeking a cheaper approach to payroll. However, it’s also important to conduct thorough due diligence to ensure the background knowledge of the BPO team is up to the payroll standard for an Australian jurisdiction and that the staff are undertaking ongoing training and development.
- Expert managed Payroll service providers: Expert-managed Payroll service providers tend to be the most trusted and comprehensive Payroll outsourcing solution.
This is because these providers build you a bespoke Payroll team and Finance Function that’s tailored to your specific business needs and has the power to evolve and grow with your business. We also help you unlock the seamless efficiency and accuracy of our certified financial professionals who work together as a team, alongside yours.
This final method is how Dexterous operates our Outsourced Payroll service.
Why choose Dexterous to outsource your Payroll?
If you’ve decided that outsourcing is the right path forward for your Payroll function, and you’re looking to work with an expert-managed Payroll service provider then Dexterous is the team for you.
- We’re your trusted and award-winning Payroll partner
At Dexterous, we strive to become an integral part of your business, and your dedicated Dexterous team will make efforts to connect on a personal level as much as possible.
We will provide you with data-driven insights so you can make informed business decisions and benefit from a high-value partnership.
- We offer customised Payroll solutions
We’ll learn your existing Payroll processes, review any areas where automation could optimise the timeliness and accuracy, document and discuss any recommended changes with you, and continually look for opportunities for improvement.
- We believe in technology-driven business
We continually invest in technology systems, robotic process automation (RPA), and training our team, all of which allow us to deliver a consistent and world-class Payroll service. We are committed to the security of your data and align our stringent processes with industry standards.
If you’re searching for an outsourced Payroll department, think Dexterous.
Our team of finance specialists work with organisations across many industries and of all different sizes to solve their Payroll needs.
We can leverage our financial expertise to guide you toward a Payroll Management strategy that gets the most out of your business and helps you reach your goals.
But that’s not all.
Our expert finance team can manage your entire finance function on your behalf – beyond just Payroll.
At Dexterous, we provide a comprehensive managed finance solution.
This means that we leverage all the latest business tools, access global talent and manage your company’s finances with the local expertise of our Sydney team.
We also equip you with a strategic approach to Financial Management and Business Finance that will remain viable amidst the challenges of a potential recession.