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(Audio) How much attention do you pay to the biggest item in your books?

Today, we were lucky enough to have a meeting with one of the top HR experts in the country. The discussion centred on how poorly HR has been managed in small and medium enterprises, leaving it a sizeable contributor to business failure.

From an accounting perspective, what could be an explanation? Although there are many self-professed payroll experts, few have the experience and qualifications to consider themselves authorities on the issue. While many have a basic understanding of the relevant software, most fail to grasp the full implications of compliance with payroll systems and the subsequent transactions. Some business owners choose to forget experts altogether and attempt to manage their payroll themselves, usually using outdated and flawed methods. Alternatively, a few accounting and bookkeeping provide payroll services, but these tend to solely give out advice, leaving the actual process to business owners or their contractors.

HR and Payroll are immense problems that have been attracted very little attention from business owners. Believe it or not, we are currently looking after over 300 sets of books from businesses ranging from $50,000 to $20 million per annum and the biggest expense in their books is always salary and wages. Think back - if you spent 40-60% of your budget to salary and wages, how much did you really invest to make sure that it was managed properly? In our opinion, at least 1% of salary and wages should be invested HR, and a further 1% should go to payroll processing and compliance management. So if you have 10 employees receiving a salary package of $100,000 per year, you should put aside $10,000 for HR and $10,000 for payroll management, so as to ensure you are not only legally covered but also getting the best return on your biggest investment!

We also discussed with the expert the conflict that often exists when payroll experts attempt to give advice on HR matters and vice versa. In some businesses, HR 'experts' are going so far as to manage payroll and group certificates for their clients! We think that the world is moving toward decentralization, where service providers will specialise in their area of interest and refrain from giving advice in other areas. This enables collaboration between different experts to give you the best business advice possible for your enterprise.

Before finishing this topic, I would love to give business some good tips to prevent mistakes in your payroll books:

  • If you are investing less than 1% of your salary and wages budget into payroll, you are likely not getting the right return on your investments. You are also expos yourself to higher risk.
  • If your payroll system isn’t able to integrate to HR to manage the system, please invest in the right payroll software like Xero or Keypay;
  • If your payroll clerk doesn’t spend a minimum of 10 hours in Continuing Professional Development each year learning all the updates and change to payroll compliance, you are increasing the risk of non-compliance in the workforce.
  • If your payroll system relies on one person who controls the process from data entries, there is a great vulnerability to fraud. Payroll duties should be segregated, with a minimum of 2 people checking and reviewing each transaction;
  • If you experience employee complaints regarding late or inaccurate wages, super payment or miscalculated leave, you need an expert to review the whole payroll system. Invest in it, because you will get great return!
  • If you have gotten a few letters from the Australian Tax Office about late lodgement of IAS or BAS, or overdue super and tax, you likely have a serious payroll issue. If, worse still, you got a letter from Fairwork Australia about incorrect pay or unfair dismissal, you could be facing serious consequences.

So invest 1% of your wage and salary in us and the best HR expert you can find - your books will thank you for it!