June 25, 2014
The end of the financial year is often filled with dread for those responsible for payroll. It’s the time of year that you draw a line under one year and start the next, hopefully with as little fuss and confusion as possible.
There are often changes that you need to understand that come into effect on July 1. These may include PAYG Withholding, Payroll Tax, FBT or superannuation. In addition this year we have changes proposed by the federal budget that include a temporary budget repair levy, changes to the paid parental leave scheme, changes to tax offsets and a restart program to consider.
Theses posts will outline what you need to do to ensure your payroll end of year goes as smoothly as possible.
Checks you need to carry out
Before you even start to think about processing your payroll year end you need to make sure the data in your payroll system is up to date.
Payment summaries seem to have a mind of their own, and unless you want to be reprinting them throughout the next 12 months, try to do what is possible now to make sure they get to your employees. If you distribute your payment summaries via an online employee self-service portal that will help, however you should still ensure that your employee details printed on the payment summary are correct.
To take time in early June, or better yet, each month during the year, to check all employee details particularly current addresses. You need to remove any full stops or commas from address fields, so do a thorough check for these. Examples may be ‘St. Georges Terrace’ or ‘Unit 2, 172 Smith St’. All punctuation in address fields must go!
Check your terminated employees have a termination date in your payroll system. Sometimes these can be missed, particularly in organisations that have a high number of casual or seasonal staff.
In your payroll system you may need to ensure that your annual leave entitlements flag is set to carry the entitlement to the next year. This is particularly important if you use an international payroll that may treat annual leave differently for each country.
Once these checks have been made you will be much more prepared to start the process of reconciliation after your last payroll in June.
Overpayments can financially hurt both employees and employers and it is important for both parties that correct payment amounts have been calculated and paid. Ideally, they need to be identified and rectified in the same financial year they are made.
I don’t need to point out the obvious consequences of overpayments. If an employer mistakenly makes an overpayment or is regularly calculating higher rates or entitlements than necessary, they will need to recoup these payments or it will directly impact their wages costs and ultimately profitability.
However, there are additional consequences for both employers and employees other than what might be obvious. These relate to the timing of finding and recouping the overpayment.
If an overpayment is discovered in the same financial year that it was made, the employer can rectify the situation by recouping only the net portion of the overpayment. They should then make a tax adjustment the following pay period so the employee has the correct tax withheld. In effect, this works like a loan to the employee. First they are paid an additional net amount, which is paid back and tax adjusted in a subsequent payroll period. No further documentation or calculation is required.
However, if you discover a payment from a previous financial year it will cause significantly more work and potential cost for both the employer and the employee.
This is because the employer will lodge their end of year figures with the tax department showing that a certain amount of tax has been withheld from the employee who has been overpaid. So when it comes to recouping the funds, the gross (as opposed to net) amount needs to be collected. This makes the employee out of pocket by the amount of the tax adjustment. The employer will now need to reissue a revised payment summary, which includes the correct amount of PAYG that should have been paid. The employee will need to lodge an amended tax return with the tax office to have the overpaid tax refunded.
My experience is that the majority of overpayments are made because employers don’t correctly understand the entitlements of the awards they are using. Often they pay shift or overtime payments on a higher figure than necessary or pay allowances that employees are not entitled to when they are on sick or annual leave.
The only way to get total comfort that you are paying correctly is to have an independent payroll compliance audit completed. In the meantime, be careful to check that any overpayments that have been made in the current financial year are recouped by June 30. This way, you’ll save both yourself and your employee time and expense in the future.
The end of financial year is on our doorstep, which means payroll departments across the country will be getting their numbers in order for the ATO.
Now that you have spent some time checking the data in your payroll system and eliminating anything that will upset the EMPDUPE file such as full stops or commas in address fields, you will be ready to start reconciling your payroll following your last June payroll.
You will also have carefully checked that any overpayments that have been made in the current financial year are recouped by June 30.
Firstly reconcile your total gross wages with your year-to-date payment summary totals. If there are any errors here you will need to work back to find out which payments have been made but not included or which payments have been included that shouldn’t be in total gross wages. Do not include amounts that have been salary sacrificed in “gross payments”.
Check that your PAYG Withholding paid for the year equals the amount on your year to date payroll summary of YTD payments.
Also check the PAYG Withholding paid for the month and the quarter equals the amount on your month and quarter to date reports.
It is best practice to do these reconciliations monthly, which makes the end of year process a lot easier.
You should then reconcile outstanding superannuation liability and compare this to unpaid superannuation for the current month and quarter.
The last reconciliation you must complete is to compare your total payroll tax for the year to the monthly payroll tax paid figures.
Once your payroll is reconciled, print your year to date payroll summary and your payroll entitlements balance as at 30 June 2014.
Now you are ready to print your payment summaries.
Take care when producing payment summaries to ensure that you have assigned payment fields for each payroll payment.
For example, check that you have assigned payment fields for all gross payments and don’t forget to exclude salary sacrifice. Assign payment fields for all allowances and penalties paid. Assign Lump Sum payments and record ETPs if applicable.
Ensure to record any reportable employer superannuation contributions if these apply to your employees. Then record reportable fringe benefits if they apply.
Verify payroll information with your payroll register summary and remember that these figures may be rounded.
You are now ready to create your EMPDUPE file. Don’t forget to save a copy of this and a backup. You can now print your payment summaries, which need to be distributed to all employees by 14 July 2014.
Save a PDF copy of your payment summaries with the copy of your EMPDUPE file.
You can now print the magnetic media form and fill it out for the ATO. Send this form with the EMPDUPE file to the ATO by 14 August 2014. Alternatively, you may lodge your annual report via the ATO’s ECI (Electronic Commerce Interface) or SBR (Standard Business Reporting) tools.
You can now roll over to a new payroll year and do a payroll system upgrade if required.
There are quite a few announced but yet to be legislated changes this end of financial year, so it may be the case that your payroll provider could provide an upgrade to your system quite late because of this. The changes to be aware of include the temporary budget repair levy, changes to the paid parental leave scheme, changes to tax offsets and the restart program.
Tracy Angwin is the founder and managing director of the Australian Payroll Association.
- Part One – http://www.smartcompany.com.au/finance/42221-what-you-need-to-know-to-prepare-for-eofy-part-1.html
- Part Two – http://www.smartcompany.com.au/finance/42326-what-you-need-to-know-to-prepare-for-eofy-part-2.html
- Part Three – http://www.smartcompany.com.au/finance/42430-what-you-need-to-know-to-prepare-for-eofy-part-3.html
- Part Four – http://www.smartcompany.com.au/finance/42509-what-you-need-to-know-to-prepare-for-eofy-part-4.html