01 Feb Employee Entitlements – Enforcement Trends
In recent months the Federal Government have pursued a robust enforcement agenda clearly focussed on employer obligations, accessorial liability and superannuation guarantee non-compliance and we’re set to see this trend continue throughout 2018.
Single Touch Payroll Reporting
In an effort to combat phoenix activity and non-payment of employee entitlements the ‘Single Touch Payroll System’ has been introduced and is considered a major reform. This legislation takes effect from 1 July 2018 and is considered as a key component of monitoring compliance of employers.
Employers who, as at 1 April 2018, employ 20 or more employees are required to use accounting/ payroll software which is ‘Single Touch Payroll’ enabled. If you have 19 or less employees, Single Touch Payroll reporting will be optional until 1 July 2019, after which it will become mandatory (subject to legislation being passed in Parliament).
The Single Touch Payroll-enabled software will report payments such as wages, allowances, deductions, PAYG withholding and superannuation information to the ATO in real time.
Employers need to include the following employees in their headcount:
- full-time employees;
- part-time employees;
- casual employees who are on your payroll on 1 April and worked any time during March;
- employees based overseas;
- any employee absent or on leave (paid or unpaid); and
- seasonal employees (eg: harvest workers).
Fair Work Ombudsman
In 2017 we saw an increase in the number of companies seeking our advice following an audit by the Fair Work Ombudsman.
The table above illustrates the increase in enforcement activities over the past five years and we believe this trend will continue.
Furthermore, given the quantum of resources committed to enforcement activities, company advisers should familiarise themselves with Section 550 of the Fair Work Act 2009 which relates to ‘accessorial liability’ and can result in a company adviser being deemed as an accessory to a breach and therefore liable.
In Fair Work Ombudsman v Blue Impression Pty Ltd  a company which operated restaurants was deemed to have underpaid its employees for an extended period. The Court deemed that an accountant, who provided payroll processing services, was an accessory to the breaches as the accountant had knowledge of the breaches and did not act to prevent the breaches from continuing. The Ombudsman sought to penalise the accountant by applying Section 550, which resulted in the accountant being fined.
A possible remedy for advisers to avoid being deemed as an accessory to the breach maybe to include clauses in their engagement letter that provides for clients to undertake to comply with current and future legislation and provide a release and indemnify for any potential future liability. This should not be seen as legal advice and I recommend advisers seek their own formal legal advice.
Criminal Penalties for Non-Payment of Superannuation
Government has proposed to introduce legislation which provides for criminal penalties for failure to comply with a direction from the ATO and can result in court ordered penalties, including up to 12 months imprisonment for the director. Furthermore, the proposed legislation is aimed at those employers who consistently and intentionally disregard their obligations and when enforcing same the ATO will take into account an employers payment history and the quantum of the unpaid entitlements.
At this stage the proposed legislation only applies to employers paying wages to employees does not include any requirements for self-employed or non-working investors to make compulsory superannuation contributions. We expect that legislation around superannuation obligations for the self employed will be the next area Government will seek to strengthen, given the significant percentage of the population who are self employed.
Submissions on the draft legislation closed last week.
In conclusion, with the introduction of tax debt information disclosure by the ATO to registered credit reporting bureaus, we believe over time this likely result in the employers receiving risk ratings for their payroll compliance. The above enforcement strategies/ activities, coupled with government agencies openly sharing information and the use of sophisticated data matching tools to identify, manage and monitor breaches, will result in the need for company directors to be more vigilant about paying employee entitlements or face significant personal exposure.