A novel proposal to incorporate modern awards into the ATO’s new payroll reporting system has been flagged as a way to help employers navigate the tricky space. But not everyone is convinced.
Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, made the suggestion on Wednesday (20 November 2019) in response to a string of high-profile businesses admitting they had underpaid some of their workforces.
It comes just as a PwC report estimated that wage underpayments in Australia collectively amount to around $1.35 billion each year.
“While the vast majority of small businesses fulfil their obligations to their employees, the award system itself is overly complicated and fluid, which can sometimes lead to the employer making honest mistakes,” Ms Carnell said.
“Of course, employers who deliberately flout the law should be punished, but any new penalties for incorrect payments should take the complexity of the system into account.
“It is critical small businesses be given the chance to rectify payment errors, when it’s clear the mistake was unintentional, rather than being automatically penalised.”
The ombudsman said that penalties should also be proportionate to both the nature of the breach as well as the size of the business.
“A fine that a large corporation could absorb, could devastate a small business,” she said.
“Small businesses are often run by a single person who does everything from management to IT and payroll. That makes it difficult for them stay on top of award changes within the elaborate industrial relations system.”
Use existing system to better support employers
Ms Carnell called on the government to simplify the awards system, to make it easier for employers to understand and hence follow the rules.
She suggested that this could be achieved by incorporating modern awards into the ATO’s Single Touch Payroll (STP) reporting system, which now applies to all employers that do not have an extension or waiver already in place.
“The rollout of Single Touch Payroll provides an opportunity to calculate award wages and entitlements through an algorithm integrated into accounting software such as Xero, MYOB, Quick[Books] and other software systems,” Ms Carnell said.
“This payment algorithm could be owned and updated by the Fair Work Commission to ensure correct wages and entitlements are correct and up to date.”
‘No silver bullet’
Xero head of industry, Matthew Prouse told Accountants Daily that STP was not designed to interpret the awards system.
“Single Touch Payroll is not an algorithm - it is a mechanism for employers to submit a report to the ATO every time they process a payroll,” said Mr Prouse.
“There are no smarts, or algorithms or logic to actually interpret the information that's sent.”
While agreeing that more could be done to digitise the current awards system, Mr Prouse believes that simply turning to a digital solution will not be enough to deal with the issue at hand.
“There's no magic silver bullet solution from a technology perspective that's going to address underreporting, over-reporting or underpayment and overpayment of wages,” said Mr Prouse.
“Technology is part of it, a digital solution is definitely a part of it but we have to recognise that we have a very complex system that has a lot of moving parts, a lot of people, a lot of different agencies involved, and we need to find ways to bring those pieces together in coherent ways.
“We've got national awards, state awards, industry-specific awards, and site-specific awards to navigate and Fair Work has a lot of information on each and every award on their website. There are a number of software companies that have digitised that, interpret them and feed into some of their payroll software,” he added.
“But the black arts are in the interpretation- it doesn't mean they all draw the same conclusions or interpret it the same way as Fair Work or an employer might or an adviser might.”
Instead, Mr Prouse believes accountants and bookkeepers will need to play a vital role in helping businesses navigate the complexity of the industrial relations system.
“A lot of that is going to be reliant on employers and employees feeding good data into digital systems and employers getting good advice from accountants, bookkeepers, and trusted advisers who are experts in their particular circumstances,” said Mr Prouse.
“It is only going to be as good as the information that employees and ultimately employers feed into the system.
“Accountants and bookkeepers are incredibly valuable in providing assurance and support for small business owners but they are going to have to invest the time, effort and energy into understanding the specific circumstances of each and every one of their clients to give accurate advice. If not, we will have the constant problem of garbage in, garbage out.”
MYOB was also contacted for comment on whether they would support such a move. The Fair Work Ombudsman declined to comment on the grounds that it is a policy matter.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.
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