Payroll and FairWork Information Requirements

There are many legal obligations that an employer is bound by. As soon as you engage employees, you will most likely have tax and superannuation obligations at the least, and there are many more issues to consider when employing people.

It is the legal responsibility of the employer to pay the correct rate of pay, superannuation, taxes, and entitlements, and to abide by all the relevant employment related laws, including FairWork.


Employer Obligations Checklist

• Modern Awards: These are industry or occupation-based minimum employment standards which apply in addition to the National Employment Standards (NES). They were created to establish one set of minimum conditions for employers and employees across Australia who work in the same industries and occupations. Almost every worker in Australia is covered by a Modern Award. While there are still some State-based awards in operation, these do not apply to employers and employees covered by the Fair Work Act 2009.
• National Employment Standards: The NES contain 10 minimum workplace entitlements which have applied to all employers and employees in the national workplace relations system since 1 January 2010, (however only certain entitlements apply to casual employees). These are legally-enforceable minimum employment terms and conditions.
• Fair Work Information Statement: All employers covered by the national workplace relations system have an obligation to give each new employee a Fair Work Information Statement before, or as soon as possible after, the employee starts employment.
• Fair Work Compliance: It is unlawful to ask people to work on unpaid trials, pay in goods rather than money, pressure employees into agreements, coerce employees or third parties to not exercise their rights, discriminate, terminate unfairly, and engage in ‘sham contracting’ arrangements. Heavy penalties apply for breaches of these laws.
• Dispute Resolution: Modern awards generally impose a process to assist in the resolution of disputes that arise about matters under the award or in relation to the NES. If the dispute can’t be resolved at the workplace level, the matter can generally be referred to the Fair Work Commission.
• Record-Keeping: According to the Fair Work Ombudsman (FWO), records need to be kept for 7 years, while the ATO says 5 years. Err on the side of caution and keep ALL payroll related records for 7 years.
• Superannuation Choice Form: An employer must provide a Superannuation Choice Form to all employees on commencement of employment and you must abide by that choice. If the employee does not make a specific choice, you must pay superannuation into a default superannuation fund.

Other Employment Obligations
Being an employer means more than simply paying your employees. There are various government bodies that you must report to. There are also various laws that govern your responsibilities as an employer.
FairWork governs many areas related to employment, for example:
Employee entitlements such as: annual leave, hours of work, flexibility arrangements, anti-bullying laws, penalty rates, working on public holidays and much more.
Examples of other areas covered are employment contracts, unfair dismissal, termination of employment, change of business ownership and record keeping obligations.


You May Need to Pay All or Some of These Taxes and Expenses:

PAYG Withholding to the ATO
Superannuation to a Clearing House or Superannuation Fund
Fringe Benefits Tax to the ATO
Payroll Tax to the State Revenue Office
Workers Compensation Insurance

You May be Governed by All or Some of These Laws:

FairWork Act 2009
Pay As You Go Act 1999
Superannuation Guarantee Act 1992
Workplace Health and Safety State laws
Payroll tax State laws
Long Service Leave State laws
Workplace Relations Act 1996
Privacy Act 1988
Freedom of Information Act 1982
Independent Contractors Act 2006
Anti-Discrimination Act 1977
Workplace Gender Equality Act 2012
Child Support Act 1989
Paid Parental Leave Act 2012

…And there may be other laws, relevant to your state or industry, that are applicable to you.


Further Advice, Information and Templates
FairWork
Department of Human Services
Australian Taxation Office
Guide to Employing People


For Professional Assistance ICB recommends
Workforce Guardian
The Association for Payroll Specialists

Debunking Myths About Fixed Fees

Value Based Pricing - Explaining what it really is….
There are many reasons that the fixed fee argument is being thrown at the bookkeeping and accounting market.

The reason today is that the software companies are automating what they perceive to be the bulk of what accountants and bookkeepers do, so they are trying to give these professionals a way to keep their fees up at the same level they were before.
The theory:

• You used to take this long to do something and therefore you used to bill a certain amount for doing that work.
• The previous bill amount is now to be the “fixed fee” or the “value” that you will bill from now on.
• Now use the latest greatest technology and pay the software company for that technology, (and probably on-sell the software to your clients).
• Because you are using the latest greatest technology, you will do the work in less time.
• You spend less time on it but the output to the client is the same so therefore they should pay the same “fixed fee” or “value”.

There is absolute validity to this position!

When a bookkeeper or accountant first starts doing their thing with a new client, they are not as quick, probably not as thorough nor as good as they will be the second or third time they do things. As you work with more clients or the same client more times you get quicker and better at providing your service. The client should not be the only one who wins out of that equation.

The concept of billing to the value provided is not new.

Currently and in the past: bills were calculated from timesheets that recorded how much time it took; hours were then billed at an agreed charge rate to work out the invoice amount. The scenario within the accounting or bookkeeping firm was that as someone got quicker, or better, or more qualified, their charge rate would go up! Also the person is likely to be being paid more so the costs are up, therefore the revenue needs to go up. As the speed of delivery improved, the charge rate also went up and the client in theory pays the same, whether a slow low-charge person did the job, or a quick high-charge person.
As a person’s knowledge increased, skill increased or expertise in a particular area increased, or became more specialised, the charge rate increased.

Fixed Fee by another name?
A normal concept in manufacturing, or in fact in some service delivery professions is a concept of “Standard Costing”.

This is where it is decided that a particular product will cost $X to manufacture. These costs may include parts and labour but someone has worked out all the components and costed them. The cost of production is calculated accordingly to a “standard cost”. They apply the required profit margin and the result is a “standard sale price”. I am tempted to call it a “fixed fee” or a “value based” billing method.

In a service firm, a person looks at the service (maybe a “standard service”) and estimates how much time it will take and how much the person costs to deliver that service. So wages, (or fee expected), plus on-costs, plus travel time, plus down time, plus margin required. This amounts to how much the “standard service” would be billed at. This sounds very much like a fixed fee type calculation.

What happens when too much time is spent?
In the standard costing arena or when say a construction contract has been signed for a fixed fee/quoted amount, the arrangement typically then allows for “variations”. When the material costs more, the job took longer than it should, it rained, the supplier puts in a variation claim and the fixed fee changes.

In our world this could happen when the amount of work changes, the scope of work changes or something unexpected happened or was found and it required you to spend more time or incur more costs; therefore you communicate this with the client and charge more as agreed.

Fixed Fees is a valid billing technique!

How do you know if Fixed Fee billing is working?
Standard costing techniques are used to streamline costing and allocation procedures. If you like, to simplify the allocation of costs to each output and help work out whether that output is contributing to the profit of the business.

A business using standard costing will look at how many units of something it produced, and based on the standard costs, calculate how much it should have cost to produce those outputs. That standard costing is compared to how much was actually spent and if the actual expenditure is more than “standard” then the “standard” is reviewed and a new standard price calculated for the next set of costings and price setting.

How does a professional bookkeeping service firm, using fixed fees, know if the fixed fee is working for them?
You would review how much revenue had come in from your Fixed Fees.
Compare that to the costs of operating the business; rent, people, software, insurance, registrations, etc.

If you made enough money then the fixed fee would be working for you.
If not, then you need to up the fees.

How do you set your fixed fee?
Think of a routine period of time. For a bookkeeper you may need to break this down into how many of each activity you will do over a year.
How many end of year payroll?
How many TPAR?
How many activity statements will you lodge?
How many weekly reporting jobs will you do?
How many other activities?

It may be useful to allocate a weighting or percentage to each activity to assist in working out how to charge. For example, 40% of time is spent on general bookkeeping, 5% on TPAR, 10% on EOY payroll, 40% on activity statements, 5% on other.
Then you can average out costs based on what percentage of your time an activity would usually take.

Then add an amount in excess of your direct costs, which will go towards covering the rest of the operating costs.

Accountants have always adjusted fees to a commercial value. Bookkeepers can do the same. Keep abreast of industry norms by talking to your peers and staying up-to-date with trends.

See this ICB resource for more thoughts about Moving to Fixed Fees

Retention Payments in the Building and Construction Industry

What is a Retention?
Retentions are used in the Building and Construction industry to secure performance of a project. Retention is money held back from contract fees to protect against defects which could develop and the contractor fails to fix. This amount is usually 5% of the full contract fee though this can be 3% for larger work. The retention value is reduced from the Progress Invoice raised for each stage of the Contract.
The percentage, proprietor’s right to retain these amounts and the builder’s entitlement for the release of these funds are usually outlined in an agreement between both parties prior to commencement of works stating what the conditions of the retention are.

What are the GST Implications of Retentions?
Once the retention amount is released to the builder GST applies in the same way as it would to progress payments under the building contract. It is not considered a separate supply but part of the original supply under the original contract.
If the retention amount is not paid to the builder then the amount withheld is considered a reduction of the supply in the original contract. As a bookkeeping entry this would be considered a bad debt.
ATO for further information: Goods and Services Tax Ruling GSTR 2000/29

30. Retention payments
If a supply is made under a contract where the recipient has retained part of the contract price pending full and satisfactory performance of the contract, or until the end of a defects liability period, the price of what is supplied is the total consideration payable including the retention amount. The tax invoice must contain enough information to enable the total price of this supply to be clearly ascertained. However, the tax invoice can also show the net amount payable while still satisfying this requirement. For example, the tax invoice may set out the price of what is supplied, separately show the retention amount, and show a net amount payable.
100. The effect of the particular attribution rule is to defer attribution of the part of GST payable or the part of input tax credit that relates to the retention amount until the amount is actually received or provided, or a document notifying an obligation to pay the retention amount is issued in relation to that amount following expiry of the defects liability period.

Bookkeeping Process
Scenario:
Bob the Builder has signed an agreement with a building company to build a new office. The total cost of the work to the building company will be $100,000 exc GST. A retention of 5% being $5,000 is to be withheld for a period of 6 months after completion of the building. Setup new Account
You need to set up 3 new accounts

• Liability – Deferred Retentions
• Income – Less: Retentions
• Asset – Retention Debtors

Follow up Diary Contact
Recommend to create a re-contact diary entry to follow up the retention value after the expiry period to withhold the retention.

Create the Sale less Retention
The invoice to the client will differ to the bookkeeping entry required for retentions. It is recommend to create the sale for the client and print and send and then return to the sale and add the additional transactions for the retention movement.
The GST doesn’t need to be paid until the retention has been paid so how do you allocate that within your invoicing especially if you are accrual based?

Client Invoice

Invoice	Account	Credit	Tax
Project X Contract Building (Full Contract Value)	Income	$100,000	GST
Less: 5% Retention Withheld	Income	-$5,000	GST
Plus GST		$9,500
Total Invoice		$114,500

Invoice bookkeeping entry would be split into 3 account groups as per below: Edit the above invoice and add the retention accounts.

• Line 1 – CR Full Amount of Contract
• Line 2 – DR Negative figure of the 5% retention value allocated to new Income Retention Account
• Line 3 – CR Deferred Retention value to be withheld
• Line 4 – DR Retention Debtors
• Leaves the Total Value of Contract + GST on value less retention

Invoice Bookkeeping Entry	Account	Debit	Credit	Tax
Contract Building (Full Contract Value)	Income		$100,000	GST
Less: Retentions Withheld	Income	$5,000		GST
Deferred Retention Withheld	Liability		$5,000	No Tax
Retention Debtor	Asset	$5,000		No Tax
Trade Debtors	Asset	$104,500		No Tax
GST Collected			$9,500	No Tax
	TOTAL	$114,500	$114,500

By entering the invoice as above your receivables only shows the amount owing excluding the retention. Your GST collected account will also only reflect the GST collected on the contract fees less the retention. The retention owed will then show in the asset and liability section of your balance sheet.
Recommend to add a Job to the Retention transaction to provide additional reporting for reconciliation purposes and Job information in the memo field if available
The same journals apply it you are invoicing for an interim or progress payment.

Invoicing and allocating for the Retention
Once the contract has been finalised and the retention period has expired you need to invoice for the retention. You would just do a sales invoice as normal and ensure that you use the GST code to account for the GST on the retention which was not accounted for previously. This will now show in your Debtors reports.
Client Invoice

Invoice	Account	Credit	Tax
Project X Contract Building (Full Contract Value)	Income	$100,000	GST
Less: 5% Retention Withheld	Income	-$5,000	GST
Plus GST		$9,500
Total Invoice		$114,500

Invoice bookkeeping entry would be split into 3 account groups as per below: Edit the above invoice and add the retention accounts.

• Line 1 – CR Full Amount of Contract
• Line 2 – DR Negative figure of the 5% retention value allocated to new Income Retention Account
• Line 3 – CR Deferred Retention value to be withheld
• Line 4 – DR Retention Debtors
• Leaves the Total Value of Contract + GST on value less retention

Invoice Bookkeeping Entry	Account	Debit	Credit	Tax
Contract Building (Full Contract Value)	Income		$100,000	GST
Less: Retentions Withheld	Income	$5,000		GST
Deferred Retention Withheld	Liability		$5,000	No Tax
Retention Debtor	Asset	$5,000		No Tax
Trade Debtors	Asset	$104,500		No Tax
GST Collected			$9,500	No Tax
	TOTAL	$114,500	$114,500

By entering the invoice as above your receivables only shows the amount owing excluding the retention. Your GST collected account will also only reflect the GST collected on the contract fees less the retention. The retention owed will then show in the asset and liability section of your balance sheet.

Recommend to add a Job to the Retention transaction to provide additional reporting for reconciliation purposes and Job information in the memo field if available
The same journals apply it you are invoicing for an interim or progress payment.

Invoicing and allocating for the Retention
Once the contract has been finalised and the retention period has expired you need to invoice for the retention. You would just do a sales invoice as normal and ensure that you use the GST code to account for the GST on the retention which was not accounted for previously. This will now show in your Debtors reports.

How to Use the Clean Up Company Feature in Reckon Accounts

Which transactions can I remove? The Clean Up Company Data wizard offers several options for cleaning up your company data file. You make these selections in steps as you progress through the wizard.

Remove transactions as of a specific date
Remove all closed transactions on and before the date you specify. Open transactions for the specified period will not be affected.

Remove all transactions
Remove all transactions from the company file. This option will cause Reckon Accounts to retain all customer and supplier names, and all items, but will delete all associated transactions. Selecting this option is like starting a new company without having to enter all the names and items over again.

Remove additional transactions as specified
Remove uncleared bank and credit card transactions, transactions marked to be printed, transactions marked to be sent, and transactions that contain unreimbursed costs.

Remove unused list items
Remove the unused list items that cleaning up leaves behind

Which transactions are not normally removed?
Normally, transactions can't be removed if they have:

• open balances
• reimbursable expenses that have not been reimbursed

Or if they if they are:
Payroll transactions from the current year

• not reconciled
• marked to be printed or emailed
• online cheques waiting to be sent or cheques with associated pending payment inquiries
• linked to other transactions that can't be removed
• payments that have not yet been deposited

Options in the Clean Up Company Data wizard allow you to override some of these rules and improve the effectiveness of the clean-up process. You can also choose to remove unused list items to further refine the process.

Small Business Owners - The ATO is listening

The ATO are committed to making life easier for small business - that's why they're inviting small business owners to join their Small Business Consultation Panel.

Panel members may have the chance to participate in various short-term activities, such as testing new products and providing your opinions. Plus, you'll be paid for your services.

They're looking for small business owners who:

• have been in business for more than two years and have an annual turnover of less than $2 million
• are interested in providing practical business and industry expertise
• are located in (or willing to travel to) Brisbane, Canberra, Sydney, or Melbourne.

The insight of small business owners will help simplify interactions with the ATO and help the ATO cut red tape. The ATO want to explore opportunities to reduce the time it takes for business operators to comply with their obligations, so they have more time to focus on running their business.

Find out more or join the Small Business Consultation Panel today by emailing smallbusinessconsultation@ato.gov.au to request an application pack

GST calculation Worksheet

When you open the BAS mail pack - do you discard or use the GST calculation Worksheet?
From Quarter 1 2014/2015, the GST calculation worksheet will no longer be included as part of the BAS mail pack sent out to business owners.

If you use the worksheet and require a copy you will still be able to access an electronic (and printable) version here interactive GST calculation worksheet for the BAS

Tipping for Services

Do You Pay GST on the Tip Received?
What happens when a customer pays a tip?
Does the business owner have to pay GST to the ATO?
Does it get reported on the BAS?
What happens with tipping depends on how the customer is tipped and how the entity passes that tip on (If they do!)

Voluntary Tipping For a voluntary tip that is passed onto employees or contractor from the owner of the business there is no GST payable as this is NOT deemed a taxable supply to the business owner. Nor are you required to report the tips as Income on the Activity Statement or Income Tax Return. However, if a voluntary tip is NOT passed onto the employees then it becomes part of the taxable supply and GST must be paid. If a contractor does not provide an ABN then 49% must be withheld from the tip. Equally you do NOT have to deduct pay as you go withholding (PAYGW) from the tips of the employees. Non-Voluntary Tipping If a tip is not voluntary – for example a pre-set tip amount is set as part of the service charge; then this is considered part of the taxable supply and GST is paid and the income is reportable on the activity statement. If you pay these tips to employees or contractors, you can claim a deduction and deduct PAYGW and report on their payment summaries.

Employees
Employees receiving tips directly from a customer or from the employer must report the tips as income.

Record Keeping
It is important to keep records that show how much of the tips received have been passed onto the employees, and if any of the tips have been kept by the owner as part of the business income.

Bookkeeping Process
Processing tips from a Z-Read or POS Summary sheet, it’s important to separate the tips in the accounting process.
For further information:
ATO Reference to Tips and Gratuities
ATO Law Reference – GST and Restaurant Tips