- The advent of Single Touch Payroll in Australia and Payday Filing in New Zealand means small businesses need compliant payroll software.
- The ‘best’ payroll solution will be appropriate to the size, budget and requirements of each particular business. In some cases, it may be better to outsource the payroll function.
- Cost, integration with a business’s existing accounting software, ease of use and help desk support are all important considerations.
Story by Stuart Corner and Sally Rose
Small businesses often lament the burden of relentless regulatory change, but an upside is that it can present an opportunity to improve a business’s systems and processes. That is certainly proving the case with the recent introduction of Single Touch Payroll (STP) legislation in Australia and Payday Filing legislation in New Zealand.
From 1 July 2019, Australia’s STP regime will extend to businesses with 20 or fewer employees (it previously applied only to larger employers). As part of the change, employers need to enter details of all employees’ payments, including superannuation contributions, into software that directly communicates to Australian Taxation Office (ATO) systems.
New Zealand has a similar Payday Filing regime that has applied to all employers from 1 April 2019.
This means the era of manual payroll is over. SMEs without accounting and payroll software, or ones using old products that won’t be upgraded to support STP or Payday Filing, will have to act to ensure they are able to comply.
Broadly speaking, SMEs have three paths to meet the new payday requirements:
- using a payroll module integrated with their accounting software
- choosing compliant stand alone payroll software
- using an intermediary or fully outsourced payroll provider.
While it’s not up to accountants to recommend particular products, they can offer valuable support to SME clients trying to navigate the technology ecosystem. The ‘best’ solution will be appropriate to the size, budget and requirements of each particular business.
Keep payroll software simple to use
It’s important not to get too distracted by optional extras. Peter Bembrick CA, taxation services partner at HLB Mann Judd Sydney, warns that a common pitfall for SMEs is choosing a payroll solution that is overly complicated for their needs.
“Many software options have all the bells and whistles, but a lot of SMEs just want something simple and easy to use,” Bembrick says. That’s where he sees accountants having an important role to play in helping SMEs understand their needs.
"Many software options have all the bells and whistles, but a lot of SMEs just want something simple and easy to use"
One feature many SMEs find useful is a built-in award calculator. Available in a number of payroll solutions, it updates as awards change and means employers comply with award rates without any extra effort. Another useful feature, available in a number of products, is when employees can login directly to the system to update their own details and request leave.
Payroll is only one part of a software solution
Any software will perform at its best only if it is properly integrated into the rest of the technology stack. Perhaps the most important thing SMEs need to consider when buying payroll software is whether the solution is an accredited partner of their accounting software provider.
Heather Smith CA, a Brisbane-based certified payroll specialist and business automation expert, strongly recommends SMEs choose a payroll solution that is an accredited partner of a major accounting software provider. That way, they can be sure it’s been subject to strict due diligence.
“With Xero, MYOB and QuickBooks, you can be sure they will thoroughly assess any offering before awarding it partner status,” Smith says.
Matt Paff, founder and CEO of business consultancy Value Adders, says it’s important to remember that when it comes to any type of software, there is no such thing as the ‘perfect solution’. “The right solution is the best fit, never the perfect solution. You must accept compromises and live with it,” he notes.
He suggests writing down all the features you are looking for under three headings: ‘non-negotiable’, ‘important’ and ‘nice to have’. This is a useful tool for prioritising the value of features offered by different providers.
In addition, whichever payroll solution is chosen, it’s critical to commit to ensuring its implementation is a success, Paff says.
“Most implementations fail not because it was the wrong solution, not because the implementation partner was incompetent, but because the customer does not invest in the project and the process of change management.”
Aleesha Bailey, a strategic outsourcing coordinator with RSM Australia, says SMEs should have a careful implementation plan.
“It’s never a good idea to choose a new platform and simply switch the old system off,” she says. “Depending on the size and complexity of an organisation’s payroll, it is recommended running at least one or two parallel pay runs before going live with a new system. This will allow business owners time to iron out any issues and mitigate disruption for employees’ pays.”
Should SMEs outsource payroll?
In many SMEs, the need to update tech to comply with STP or Payday Filing changes will prompt a discussion about whether to outsource the entire payroll function.
The CEO of the Australian Payroll Association, Tracy Angwin, argues that no matter how good the payroll software solution, it’s simply too much for SMEs to manage given the complexities of dealing with industrial relations and taxation law.
“The only ironclad advice I would give any company with less than 200 people – no matter how good they are at managing their affairs – is to outsource payroll,” Angwin says.
“The only ironclad advice I would give any company with less than 200 people – no matter how good they are at managing their affairs – is to outsource payroll.”
But it’s important to remember that the outsourced relationship still requires managing, warns payroll specialist Smith.
“Many times I have seen cases where a staff member has left and continued to be paid for months. If a business owner is going to outsource payroll, they should be looking at the summary information and have a deep understanding of what it should look like so they can see what is correct.”
Essential questions to ask about payroll software
- What are the upfront costs for the software?
- Ongoing costs?
- Is it a certified partner of your accounting software provider?
- Is it compliant with Single Touch Payroll (Australia) or Payday Filing (New Zealand)?
- What segment is this solution designed for: small, medium or large enterprises?
- What training options are provided?
- Is help desk support available?
- Is it desktop or cloud based?
- If cloud based, where is the data stored?
- What are the integration options? (Open or restricted API and are they working?)
- What is the frequency of integration (by the minute, hour, day)?
- What are the extra features? And are they helpful to the business?
- What efficiencies will this solution create in the business?
8 expert tips on choosing payroll software
Emma Irvine, a payroll and technology specialist with Whitelaw Weber in Kerikeri, New Zealand has these top tips for choosing a payroll solution.
1. Make sure the payroll software you choose is well integrated with your accounting system.
2. Beware of low-cost payroll software that could be more time consuming to use than a more expensive option.
3. Make sure the developer provides timely updates to the software to incorporate changes in legislation and Australian Taxation Office or Inland Revenue requirements.
4. Consider the value to your business of additional features that your business might need such as electronic time sheets, rostering, or a mobile app.
5. Be careful not to choose software that far exceeds the requirements of your business.
6. Don’t buy software without getting an initial trial to see how well it suits the requirements of your business.
7. Beware of paying too much if the package charges a fixed monthly fee plus a fee per employee for services such as tax and direct deposit.
8. Look at your overall business priorities and resources and consider outsourcing payroll if it would free you up to focus on more important priorities such as growing or improving your business, or if you are struggling to keep up with changes in payroll requirements.
Learn more about Single Touch Payroll
The Australian Taxation Office has published an STP product register and a list of no-cost and low-cost STP compliant payroll solutions.Find out more
Learn more about Payday Filing
New Zealand’s Inland Revenue has information and resources to assist businesses to comply with Payday Filing.Find out more
The push towards digital (Single Touch Payroll)
“The push towards digital (Single Touch Payroll)” by Linda Santacruz explores how Single Touch Payroll compliance is a chance for clients to review their processes and become more digitally savvy.Read at CA Library