13 Myths of Payroll and the Reality of Getting it Right.
Payroll can be a complex area for businesses, and misconceptions are common. Here are some of the most prevalent myths people believe when it comes to payroll, along with the reality to dispel these misunderstandings:
1. Payroll is just about calculating wages
Myth: Payroll is simply about adding up hours worked and paying employees.
Reality: Payroll involves far more than calculating wages. It includes compliance with taxation laws, superannuation, leave entitlements, public holiday pay, award interpretation, and reporting obligations such as Single Touch Payroll (STP). Failing to manage these elements can result in serious legal and financial consequences.
2. Payroll Software Does Everything Automatically
Myth: Using payroll software guarantees 100% accuracy and compliance.
Reality: While payroll software is a powerful tool, it still requires correct data entry and regular updates to reflect changes in legislation, awards, or employee details. Errors in setup or failing to update systems can lead to compliance issues and wage theft.us legal and financial consequences.
3. All Employees Can Be Paid the Same Way
Myth:
There’s no need to differentiate between casual, part-time, and full-time employees
Reality:
Each employee type has distinct entitlements, including leave accruals, overtime pay, and public holiday rates. Misclassifying employees or applying incorrect rules can lead to underpayments or overpayments, both of which can harm your business.
4. Small Businesses Are Exempt from Strict Payroll Laws
Myth: Small businesses have more flexibility in how they handle payroll.
Reality: All businesses, regardless of size, must comply with the same workplace laws, including the Fair Work Act, National Employment Standards (NES), and taxation requirements. Small businesses are equally liable for breaches and can face penalties for non-compliance.
5. Paying in Cash is a Legal Shortcut
Myth: Paying employees in cash avoids tax and simplifies payroll.
Reality: Paying in cash is legal, but only if you still comply with all tax, superannuation, and reporting requirements. Failure to do so constitutes wage theft and tax evasion, attracting severe penalties
6. Superannuation is Optional for Some Employees
Myth: You only need to pay superannuation for permanent employees.
Reality: Superannuation must be paid for most employees, including casual workers, if they earn $450 or more in a calendar month. Failing to meet your super obligations can lead to penalties from the Australian Taxation Office (ATO)
7. Payroll Is a Set-and-Forget Process
Myth: Once payroll is set up, it doesn’t need ongoing attention.
Reality: Payroll requires constant monitoring and updates. Changes in legislation, awards, tax rates, or employee status can affect payroll, and ignoring these changes can result in errors and non-compliance.
8. Outsourcing Payroll Is Too Expensive
Myth: Outsourcing payroll is a costly luxury that only large businesses can afford.
Reality: Outsourcing payroll can save businesses time, reduce errors, and ensure compliance, which often offsets the cost. It’s a particularly valuable investment for small and medium-sized businesses that lack in-house expertise
9. Overtime and Penalty Rates Are Always Negotiable
Myth: Employers and employees can agree to skip penalty rates or overtime pay.
Reality: Penalty rates and overtime are legal entitlements under Modern Awards and the NES. Employees cannot waive these rights, even if they agree to it. Employers must pay these rates as required by law
10. Payroll Mistakes Are Easily Forgiven
Myth: Employees understand that payroll errors happen and won’t make a fuss.
Reality: Payroll mistakes can significantly impact employees’ finances and trust in their employer. Repeated errors or underpayments can lead to formal complaints, disputes, and reputational damage
11. Independent Contractors Don’t Require Payroll
Myth: Contractors handle their own tax and super, so they’re not part of payroll.Reality: Misclassifying employees as independent contractors is a common mistake. If a contractor is deemed an employee by the ATO or Fair Work Ombudsman, the employer may be liable for back pay, super, and penalties
12. Payroll Compliance Is Only a Concern During Tax Time
Myth: You only need to worry about payroll accuracy at the end of the financial year.
Reality: Payroll compliance is a year-round responsibility. Single Touch Payroll (STP) requires real-time reporting of employee wages and taxes to the ATO with every pay cycle, making compliance a continuous process
13. Paying Above Award Rates Covers Everything
Myth: If you pay employees above award wages, you don’t need to worry about awards or entitlements.
Reality: Even if you pay above award rates, you must still comply with award conditions, such as penalty rates, allowances, and leave entitlements. Overpaying in one area does not offset underpayment in another.
