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Welcome to

FNSTPB412 Establish and

maintain payroll systems

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Payroll Accounting

Chapter One
The Payroll System

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Topic Outline

1.1 Introduction to Payroll

1.2 Legislation & Regulatory Bodies
1.3 Collecting Data

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Wages and Salaries

Q What are wages and salaries?

A Business expenses for work performed by

employees.

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1.1 Introduction to Payroll

PAYG (Pay As You Go) Withholding Tax:

The employer deducts tax from the pay of employees and
remits the income tax to the Australian Taxation Office (ATO).

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Employer Obligations
• Register with the ATO as a PAYG Withholder.
• Pay the correct wages including base salary and overtime payments.
• Pay workers Compensation Insurance in the correct amount
• Maintain records of time worked and wages of employees.
• Withhold income tax from wages of employees (PAYG Withholding Tax).
• Report payroll details to the ATO via Single Touch Payroll.
• Report and pay PAYG Withholdings to the ATO (on the BAS or IAS).
• Lodge a PAYG Withholding Annual Report summarising gross wages and PAYG
withheld for the year for each employee.
• Pay the Superannuation Guarantee for each employee.
• Provide employees with pay slips within 24 hours of wage payment.
• Provide full-time and part-time employees a minimum entitlement of annual
leave and personal leave pay.
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Internal Controls
a) Adequate supervision and authorisation of time
records.
b) Separation of duties: Recording payments, record
keeping etc.
c) Review of register and journals prior to
payment/payroll processing.
d) A suitable payroll system maintained (software,
records management etc).

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Accurate Payroll Accounting

• Regular and precise payment of wages and

salaries is an important aspect of human resource
management.
• Timely and reliable recording of payroll details is
also needed to meet statutory and industrial
award requirements.

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Glossary of Terms (pages 12 & 13)

The terms in the Glossary will be used in future
chapters. As you come across each term, ask yourself:
• Are there any words or terms in the explanation which I don’t
understand?
• How could I explain this concept to someone else, in different
words?
• Why is this term important? Why would I need to know it?

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Glossary of Terms (pages 12 & 13)

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1.2 Legislation and Regulatory Bodies

The pay rates and working conditions of workers

may be regulated by federal or state legislation,
industry awards, agreements and employment
contracts.

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Fair Work Act 2009

This Act introduced a new regime of national workplace relations
that defined the minimum standards for workers in Australia and
created four key bodies
1. Fair Work Commission.
2. Fair Work Ombudsman.
3. Fair Work Building Commission (later replaced by the Australian Building and
Construction Commission).
4. Fair Work Federal Division of the Federal Court and Federal District Court.
5. Registered organisations commission. (This body is the independent regulator of
unions and employer associations.) – Masters Builder Association of Victoria; etc.

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Fair Work Act 2009

Key features of the Act are:
• Range of functions relating to:
• Safety net of minimum wages and employment conditions,
• Enterprise bargaining,
• Industrial action,
• Dispute resolution,
• Termination of employment,
• Other workplace matters.

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Fair Work Ombudsman

Manages and provides information and advice
about workplace rights and rules.
• Offers people a single point of contact for them to get
information;
• Educates people working in Australia;
• Investigates complaints or suspected contraventions;
• Litigates to enforce workplace laws;
• Builds strong and effective relationships with
stakeholders. www.fairwork.gov.au
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The Australian Taxation Office

• Administers taxation legislation.

• It is the collection agency for most

Commonwealth taxation revenue including
personal income tax, company tax and
GST.

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Australian Business Number (ABN)

An Australian Business Number (ABN) is a unique 11-digit identifier
assigned to each Australian business.
• Facilitate a single Business Activity Statement.
• Confirm its business identity to others when ordering and invoicing.
• Avoid the No ABN Withholding tax on its receipts from other
businesses. (47% of the invoiced amount if no ABN is supplied).
• Claim GST credits.
• Claim energy grants credits.
• Purchase an Australian domain name.

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Tax File Numbers (TFN)

• Used by the ATO to individually identify each taxpayer.

• TFNs are also used for tracking employee pay and tax
information.

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TFN Declarations
• An employer should obtain a TFN Declaration
form from each of their employees.

• If an employee does not declare a TFN on the

form, tax is withheld at the top marginal rate
(currently 47%) plus Medicare levy for residents.

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PAYG Withholding Tax

• Tax deducted from wages.

• Also known as PAYG Withheld.
• Paid by the employer on behalf of the employee to the
ATO as an instalment of personal income tax of the
employee.

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PAYG Withholding Tax

Business’ Obligations:
• Register with ATO.
• Keep records.
• Collect TFN Declaration and Withholding Declaration Forms.
• Withhold the prescribed amounts.
• Report and remit to the ATO.
• Report pay details to the ATO via STP
• Issue Payment Summaries only if required to do so.
• Lodge a PAYG Withholding Annual Report.
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Medicare Levy

• 2% of taxable income.
• Levy is included in amounts listed in Tax Tables (see
Appendix of your book).
• Medicare levy surcharge or reduced Medicare levy
may apply to specific employees.

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Study and Training Support Loans

• The government provides financial assistance (in the form of loans)
to people undertaking higher education, trade apprenticeships and
other training programs.
• The ATO has responsibility for the collection of these loans through
the tax system.
• The Study and Training Support loans are income contingent and
when the taxpayer’s income exceeds the repayment threshold, they
will have to start repaying their loan.
• Compulsory repayments are made through the tax system. The
taxpayer may also make voluntary repayments to reduce the
balance faster.
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Superannuation Guarantee

Exemptions:
• Under 18 working < 30 hours per week.
• Domestic worker working <30 hours per week.

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Superannuation Guarantee
10.5% of the employee’s Ordinary Time Earnings (OTE) to a complying
superannuation fund (CFS).

Ordinary Time Earnings:

• Wages and salary paid
• Expense allowances
• Reimbursement
• On-call allowances
• Casual loadings
• Shift payments
• Leave and workers compensation payments.
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Super Payment Due Dates

Superannuation Quarter Payment due date

1 July - 30 September 28 October

1 October - 31 December 28 January
1 January - 31 March 28 April
1 April - 30 June 28 July

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Superannuation Guarantee

If the employer fails to meet its obligations then the

employer will be subject to an extra charge and will not
be able to claim the superannuation expense as a tax
deduction.

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Fringe Benefits Tax

Tax on non-cash benefits to employees or employees’
associates.
Common Examples:
• Car Fringe Benefit.
• Loan Fringe Benefit.
• Reimbursing an expense
• Providing entertainment by way of food, drink or
recreation

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FBT Exemptions and

Not-for-Profit Organisations

Certain charities registered with the Australian

Charities and Not-for-Profits Commission (ACNC)
are exempt from paying FBT up to a capped
threshold on the “grossed-up” value of fringe
benefits provided.

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FBT Exemptions and NFP Organisations

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FBT Exemptions and

Not-for-Profit Organisations
The rebate is an entitlement to a rebate equal to a
percentage of the gross FBT payable subject to
capping thresholds.
Charities that are institutions must be endorsed by
the ATO to access the FBT rebate.

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Other Payroll Legislation

• Payroll Tax
• Privacy Act 1988
• Australian Bureau of Statistics Act 1975
• Workers Compensation
• Child Support Agency

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Tax Agent Services Act 2009

The key features of the Act:
• The establishment of a national Tax Practitioners Board (TPB), replacing the
existing State-based boards.
• A legislated code of professional conduct that governs the provision of tax
agent services.
• A wider range of disciplinary sanctions available to the new board, including a
civil penalty for certain types of serious misconduct by tax practitioners.
• Registration and regulation of BAS service providers as BAS agents.
• Protection for taxpayers from tax shortfall penalties for making false or
misleading statements, where a taxpayer demonstrates that they have taken
reasonable care.
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BAS Provision
• Indirect taxes, including:
 The goods and services tax (GST).
 The wine tax.
 The luxury car tax.
 The fuel tax.

• The pay as you go (PAYG) system.

• Collection and recovery of Fringe Benefits Tax.
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BAS Agent Registration

The registration requirements for BAS Agents are:
• Be at least 18 years of age.
• Be a fit and proper person as defined by the Act.
• Meet the qualification and experience requirements.
• Be covered by Professional Indemnity insurance.
• Agree to abide by the TPB Code of Professional Conduct.
• Pay for application ($146 for current year)
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Code of Professional Conduct

If a BAS agent failed to comply with the Code; it may impose :
(a) A written caution.
(b) An order requiring you to take one or more actions including, but not limited
to:
• Respond to requests and directions from the Board.
• Completing a course of education or training specified by the Board.
• Providing services (for which the tax agent or BAS agent is registered) only
under the supervision of another tax agent or BAS agent that has been
specified in the order.
(c) Suspending your registration.
(d) Terminating your registration.

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Code of Professional Conduct

The BAS agent must display:
• Honesty and Integrity
• Independence
• Confidentiality
• Competence
• Other responsibilities

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Code of Professional Conduct

Other responsibilities
• Not knowingly obstruct the proper administration of the
taxation laws.
• Advise the client of the client’s rights and obligations under the
taxation laws that are materially related to the BAS agent
services provided by the agent.
• Maintain the professional indemnity insurance that the TPB
requires the agent to maintain.
• Respond to requests and directions from the TPB in a timely,
responsible and reasonable manner.

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1.3 Collecting Data

• Personal details of the employee.
• Tax File Number Declaration.
• Withholding Declaration.
• Awards, Individual contracts and Enterprise
agreements.
• Deductions notification.
• Superannuation Standard Choice Form.
• Fair Work Information Statement

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Data to be Collected
• How much should an employee be paid?
• Is the employee claiming the tax-free threshold?
• Are any tax offsets relevant to the employees?
• What is the employee’s entitlement to personal leave?
• Which superannuation fund does the employees wish to
use?
Answers to these and other questions are found in various
documents that the employer gathers.

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Awards, Agreements and

National Minimum Wage Order
Wages, allowances and penalties along with entitlements and
minimum provisions are all determined by following a three-step
process:

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Step 1: Find the correct instrument

1. Enterprise Agreements – Made at an enterprise level between employers and
employees about terms and condition of employment.
2. Modern Awards – Are either ‘industry’ or ‘occupation’ based and apply to
employers and employees who perform work covered by the award. Can be
ascertained by using a tool on the Fair Work Ombudsman’s website.
3. National Minimum Wage Order – Set by an Expert Panel of the Fair Work
Commission.

https://www.fwc.gov.au/

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Step 2: Determine the correct classification

Classifications are dependent upon the instrument:
• Enterprise Agreements - will detail each classification and the rates that
apply in the agreement itself.
• Modern Awards - stipulate minimum pay rates in the main body of the
award and detailed classifications and associated rates as a schedule to the
award.
• National Minimum Wage Order - has no classifications, only one flat rate.

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Step 3: Apply the applicable rate

Payments and rates are dependent upon the instrument and
amounts that may be applicable include:
• Base rates.
• Penalty rates - extra amounts paid for working unsociable
hours.
• Loadings - extra amounts paid to casuals and employees taking
annual leave.
• Overtime rates - extra amounts paid for work outside of the
hours deemed to be ‘ordinary hours’ or after working 38 hours
in one week (or over an averaging period).
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Meeting Payroll Requirements

• Maintain written records.
• Issue employees with compliant contracts.
• Discuss the Awards and National Employment
Standards with the employer and employee ensuring
there is evidence that the Fair Work Information
Statement was provided to the employees.
• Ensure periodic reviews of awards and their application
to individual employees.

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Tax File Number Declaration

All employees are required to complete a TFN

Declaration when commencing work with an
employer.

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Withholding Declaration
Used for:
• For the employee to request additional tax to
be deducted from his/her wages;
• Amending details originally submitted on the
TFN Declaration; or
• Go to www.ato.gov.au and search ‘NAT 3093’
or ‘Withholding Declaration’.

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Deductions Notification
Employers and employees may reach an
agreement to deduct regular amounts for
personal expenses from the employee’s pay.

Examples of deductions:
• Medical insurance.
• Housing loan repayments.
• Union fees.

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Superannuation Standard Choice Form

Employees can nominate a particular superannuation fund for their

Superannuation Guarantee payments.

To do so they complete a Superannuation Standard Choice Form.

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Payroll Accounting
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Employee Record / Employee Card

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Activity – Chapter 1 quiz

Refer Quiz in Canvas

✍️Chapter 1 Quiz - PAYG Instalments & Withholdings

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Research project
(a) What is the aim of the National Employment Standards and the
national minimum wage?

• The National Employment Standards (NES) became effective on 1 July 2010; they set minimum pay and conditions of work for
employees in Australia.

• The National Employment Standards apply to everyone in the national workplace relations system, no matter what award,
agreement or employment contract covers them. The national minimum wage sets the minimum pay level for adult
employees

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Research project
(b) What is an Enterprise Agreement? What is a Modern Award? Compare Enterprise
Agreements with Modern Awards

• ENTERPRISE AGREEMENT is an agreement made under the Fair Work Act 2009 (on or after 1 July 2009) between one or more employers and a
group of employees about terms and conditions of employment for those employees. Employees must vote on approve and lodge agreements
before they take effect.
• Agreements must at least meet the minimum conditions of employment set out in the National Employment Standards.
• Minimum wages in agreements can’t be lower than the rates in the relevant modern award.

• MODERN AWARDS operate together with the National Employment Standards (NES) to provide minimum conditions of employment for
employers and employees in the ‘national system’.
• Modern awards supplement the NES by setting out additional minimum terms and conditions in a particular industry or occupation, including
monetary entitlements such as wages, penalty rates and allowances.
• Modern awards are consolidated awards and have replaced employment terms and conditions previously contained in certain federal
instruments.
• Modern awards also include minimum wage entitlements previously contained in the Australian Fair Pay and Conditions Standard (e.g. pay
scales and the federal minimum wage).

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Research project
(c) What are the principles of workplace privacy?
• Federal privacy laws regulate the collection and handling of personal information through minimum privacy standards. These are known as the
National Privacy
• Principles (NPPs). Agreements must at least meet the minimum conditions of employment set out in the National Employment Standards.
• Minimum wages in agreements can’t be lower than the rates in the relevant modern award.

• MODERN AWARDS operate together with the National Employment Standards (NES) to provide minimum conditions of employment for
employers and employees in the ‘national system’.
• Modern awards supplement the NES by setting out additional minimum terms and conditions in a particular industry or occupation, including
monetary entitlements such as wages, penalty rates and allowances.
• Modern awards are consolidated awards and have replaced employment terms and conditions previously contained in certain federal
instruments.
• Modern awards also include minimum wage entitlements previously contained in the Australian Fair Pay and Conditions Standard (e.g. pay
scales and the federal minimum wage).

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