For many businesses, end of the financial year brings greater demands than usual. Payroll professionals often find this time of the year a stressful period. Other than the usual weekly/fortnightly/monthly payroll processing and tasks there are the additional items that need to be considered – balancing and producing payment summaries, resetting year to date (YTD) figures and reviewing employee’s records in preparation for the new financial year just to name a few. It’s easy to see why payroll professionals dread this time of the year.
Preparation is vital to a smooth and stress-free end of financial year.
Here are some tips to help avoid any last minute problems
Reconcile Payment Summaries before final payroll
Reconciling your employee’s earnings before running the final payroll for the financial year gives you time to complete any required adjustments to employee’s earning. This will reduce the need to amend payment summaries after the original has been produced.
What to look out for when reviewing payment summaries:
- Report whole dollars only – drop the cents so that values report in whole dollars only.
- Do not show negative amounts – if negative amounts appear for an employee in the current financial year, an adjustment should be made to the employee’s year to date earnings prior to the payment summary being produced.
- Superannuation Contributions made to meet your Superannuation Contribution Guarantee (SCG) should not appear on payment summaries.
- Salary sacrificed amounts made by an employee to superannuation should appear in the payment summary’s Reportable Employer Super Contribution (RESC) label.
- Employment Termination Payment (ETP) amounts paid to an employee as a result of an involuntary or voluntary termination are to be reported on a PAYG Payment Summary – Employment Termination Payment. Payments that are subject to the Whole of Income cap should be reported at label O and payments subject to the ETP cap should be reported at label R.
Issue Payment Summaries by 14th July
Employees, workers and payees that you have paid in the financial year need to receive their payment summaries by 14th July. It is important to decide how your employees are to receive their payment summaries.
Consider whether manually prepared or printed payment summaries will be handed out or posted. If posting, ensure that you allow enough time for delivery.
If distributing electronically, provide employees with clear instructions on how to access these online.
Review final payroll processing and pay dates
A payroll that is processed and paid by 30 June will be included and reported on the current financial year’s payment summary. A payroll with a pay date on or after 1 July will be included and reported on the next financial year’s payment summary.
With payments that are made electronically, the payment date is either the date specified in the electronic transaction (the release date from the employer’s bank account) or the date payment is intended to be made into the employees’ bank account.
Decide if Superannuation Guarantee Contributions are to be paid early
Superannuation guarantee contributions (SGC) are counted in the financial year the super funds receive payment.
- Voluntary (after tax) contributions – an employee wants to take advantage of the Government’s co-contribution scheme, or
- Employer or salary sacrifice (before tax) contributions – June’s superannuation guarantee contribution is required to be included in the concessional superannuation cap for the current financial year.
Find out whether any of your employees require and/or request that their superannuation guarantee contributions be paid.
Also note that regardless of how you pay superannuation guarantee contributions – directly to recipient funds by your organisation or via a clearing house – you must allow ample time for recipients to receive payments by 30 June following the final payroll processing in the current financial year.
Pay Superannuation in holding accounts
Employees can generally choose their own super fund and provide you with details of recipient fund via the Superannuation (Super) Standard choice form (NAT13080) within 28 days of their starting date.
In cases where employees have not yet indicated their choice of super fund and you have processed a payroll, you may have calculated their super and held it in a ‘holding’ account.
Any amounts in a holding account need to be paid into the employee’s choice of fund or your organisations nominated ‘default fund’ before the end of the current financial year.
Also note that a reconciliation should be completed each quarter.
Review PAYG Withholdings variations
An employee may want to vary the rate of tax withheld to avoid:
- having too much tax withheld during a financial year; or
- receiving a large tax bill at the end of the financial year
Employees wanting to decrease their PAYG withheld amounts must complete a PAYG withholding variation application and lodge it with the ATO.
PAYG Withholding variations may include variations to gross payments made to employees for payments such as salary, wages and overtime.
Once the ATO approves a downward variation, a variation notice will be provided to the employer indicating the approved variation and the expiry date of the notice.
Where an employee’s variation ceases at the end of the current financial year, ensure that the downward variation rate is removed from the employee’s records after the final payroll has been processed for the current financial year so that the correct rate of PAYG is withheld for the first payroll processed in the new financial year.
An employee who has entered into an agreement with you to increase the rate of PAYG withheld from their earnings, may only want a variation in place for the current financial year.
Where an employee chooses to cease or vary their upward variation at the end of the financial year, ensure that the employee’s record is updated after the final payroll has been processed.
All set for year end?
Remember these are only some of the main points you need to consider for year end. How you prepare will depend on your business needs and requirements. Give us a call today on 02 4933 6888 to book your tax planning appointment.