Payroll Transformation Leader
Implementing a systems maintenance program within your Payroll function is vital step towards ensuring you do not become headline news for incorrectly paying your employees.
A systems maintenance program involves identifying your key systems and the areas within those systems that require you to undertake periodical testing or checks.
Implementing a well thought out and effective systems maintenance program can go a long way to mitigating the risk of not paying your employees correctly. To ensure that the program is being managed effectively, consider incorporating the requirements into the Payroll team’s performance plans and risk/control register.
I have listed a number of key areas within your Payroll and Time/Attendance systems that I feel as being critical to a systems maintenance program.
Ordinary Times Earnings (OTE)
Incorrectly calculating superannuation can lead to significant consequences for the Payroll team and the business. Retrospectively calculating superannuation is a time consuming task for the Payroll team.
In addition, the ATO will generally impose an Administration Charge (per quarter, per employee) and will require you to calculate the nominal interest rate. These processes are not only time consuming, but complicated.
To ensure you are calculating Superannuation correctly:
Ensure all your pay components are clearly labeled and identifiable. This will help you in identifying whether superannuation is payable on amounts processed.
Perform an Annual health check to ensure each pay component is correctly flagged to include or exclude from the Superannuation calculation processes.
Where possible, download your pay components table to a spreadsheet, as this will make it easier to perform the review. Be sure to note any changes and relevant commentary prior to saving the spreadsheet in case it is required in the future. It is also a good way to prove that you have performed the checks.
If you have identified a pay component that has not been correctly included or excluded from the superannuation calculation processes, contact the ATO and determine the necessary steps required to correct the under or over calculation.
Many businesses use a Time/Attendance system to capture attendance and interpret awards. These systems rely on a series of complex rules in order to turn the employees attendance into hours worked and transfer the hours to pay components within your Payroll system.
Whilst it is vitally important to complete in-depth testing of a new Time/Attendance system during the implementation phase, testing should not end there. Whilst rules that a programmed into the system may not have changed since implementation, your software may have.
As with all software, vendors apply upgrades to improve functionality and performance. Upgrades to applications may have an impact on how the system are reading and translating the interpretation rules. It is vital that testing is performed after every update/upgrade.
To ensure your Time/Attendance system is well maintained:
When implementing the system, build a number of test scripts that are designed to test all the core elements of your award interpretation. Each script should include the inputs, expected outputs and the test outcomes.
After every Update/Upgrade, you should test the system by completing each test script, ensuring the system correctly generates the expected outputs. Be sure to save the completed test scripts in case you are audited.
Perform an Annual health check by using the test scripts. If the system is not generating the expected outputs, you may have an issue. Be sure to save the completed test scripts in case you are audited.
Once implemented and tested, interpretation rules should not change. In the event that you do need to adjust the interpretation rules, be sure to amend your test scripts and perform the tests.
Tip: Prior to programming your awards/agreements into a Time/Attendance system, ensure the interpretation of each award/agreement is fully documented and includes a change log. If a change is required, be sure the document is updated with all the relevant details including who authorized the change, when the change was applied and why it was necessary.
In many systems, tax and leave accruals are directly linked to pay components.
Ensure all your pay components are clearly labeled and identifiable. This will help you in reviewing each pay component. If your system does not provide adequate space detailed labeling, consider creating a code book in a spreadsheet that tracks all the details.
Perform an Annual health check on each pay component and:
Check whether each code is correctly being included/excluded from the Leave Accruals process; and
Check what Tax Rules are being applied to each code. Also, be sure to check the STP/Payment Summary category; and
Check whether each code is correctly being included/excluded from Payroll Tax.
About the Author
This blog was written by Daniel Watson. You can contact Daniel via his LinkedIn page.