US Payroll vs Australian Payroll – A Quick Comparison

While working on the QBO Australia training videos, I had to become familiar with Australian bookkeeping and over one weekend, I gave myself a crash course on payroll. It’s a different filing system (what they refer to as lodging) and I went to my friend and colleague, Lauretta Finis, for some clarification on things.

They’re required to do quarterly filings, but the financial periods are different:

Annual Period (Fiscal/Financial Year)

US: January 1 – December 31 (for sole proprietorships or businesses taxed as such, like a single member LLC) otherwise, at the end of a quarter, depending on the business cycle

Australia: July 1 – June 30 (there are a few exceptions)

Quarterly Periods

 

US

Australia

Q1 Jan-Mar Jul-Sep
Q2 Apr-June Oct-Dec
Q3 Jul-Sep Jan-Mar
Q4 Oct-Dec Apr-Jun

 

Quarterly reporting for payroll and GST (the Australian goods/services tax, what we refer to generally as sales tax) is due the month following the end of the quarter, just as it is in the US.

What I found most interesting were the differences in requirements regarding retirement benefits from what we’re required to do at home in the United States.

Australians are required to contribute to a retirement fund and it’s called Superannuation (or “super” for short) – very different from the US, where this is a voluntary benefit that employers can offer. Lauretta explained this compulsory program is for employees that earn over $450 per month. Here at home, employers can offer a 401k program, and they are not required to do contribute any, although some will match employee contributions up to a certain percentage.

Lauretta explains it this way:

“Generally, you have to pay super for an employee if they’re between 18 and 69 years old (inclusive) and you pay them $450 or more (before tax) in salary or wages in a month. It doesn’t matter whether the employee is full time, part time or casual. Employees who are under 18 years old must meet these conditions and work at least 30 hours per week to be entitled to the super guarantee.”

What I find fascinating is that the employer is also required to pay into the super for contractors -

“You also have to pay super for contractors if the contract is wholly or principally for their labour, and for employees who are temporary residents of Australia.”

She adds this as well:

“If you’re a sole trader or partner in a partnership you don’t have to pay super for yourself, but you can make super contributions as a way of saving for your retirement.”

I asked if employees could choose the fund(s) they want to contribute to, or if they’re required to use specific funds, dictated by employers or the Australian government (I was thinking at first it was similar to our Social Security program).  Here’s the explanation from Lauretta:

“…individuals (employees)  choose their own super fund. .. this gives them the choice of either staying with their own super fund or letting the employer use their own nominated super fund”

She also explains that the MINIMUM requirement for super is 9% (!) And that it will increase this July to 9.25% and to 12% (!!) by 2020:

Year Rate
Current Rate 9.00%
July 2013 9.25%
July 2014 9.50%
July 2015 10.00%
July 2016 10.50%
July 2017 11.00%
July 2018 11/50%
July 2019 and onwards 12.00%

 

Since we are required to pay into Social Security and Medicare and employers are required to match employee deductions, to explain it to my American counterparts, it’s easiest to explain it as as sort of cross between a 401k and our Social Security and Medicare requirements. Employers are adding to a retirement fund similar to 401k, but are required to contribute to it as we do with the matching of Social Security and Medicare.

The thing that shocked me was that employees are not required to contribute to the super, but they can choose to add to the funds a few different ways:

  1. Salary sacrifice – “Salary sacrifice contributions are when you and your employer make a valid agreement to pay some of your future before-tax (gross) salary or wages into your super. If you want to make salary sacrifice contributions, talk to your employer about it first to make sure they allow it and you know what the benefits will be to you – for example: salary sacrifice reduces your assessable income”
  2. Personal Contribution – “Personal contributions generally come from after-tax pay or business profits. Unless employees are allowed an income tax deduction for them, they will count towards non-concessional contributions cap. These can be added to the super if and individual is not working, and they may be eligible claim a tax deduction for these contributions if, for example, an individual is self-employed (employees usually can’t claim a deduction) and employees may also be able to make contributions into their spouse’s super fund”
  3. Adding if you’re not working – “Individuals may make personal after-tax contributions to the super fund or retirement savings account if they’re not working, provided they under 65 years of age. If an individual is over 65, they can only make personal after-tax super contributions if they are under 75 years old and have been gainfully employed for at least 40 hours over 30 consecutive days during the financial year.”

I also asked if most bookkeepers offered payroll as a service and what I found is that there is not a large proliferation of payroll service companies. The majority of bookkeepers here either do the payroll for their clients, train their clients on how to process, or oversee it by verifying their gross wages against their quarterly BAS (Business Activity Statement) report – which is similar to what we do when tying the wages into our 941s. At the end of the year they have Payment Summary form that is similar to our W2s.

This is not to say that payroll services (or specialists) are not used; I spoke with a few that have clients that make use of them – Lauretta mentioned that some of her clients, like hairdressers or cafes use them because of the high turnover and wide age range of their employees, and are open 7 days, which means different rates per hour plus penalty rates.

Taking a step back, I love all the parallels – quarterly payments and filings (or lodgings, for Australians), for withholding and sales tax/GST. We all have clients that might have complex situations that require a payroll specialist, and they all have compulsory requirements for business owners that require assistance from accounting professionals.

Last, we all have the same process: sitting down with each client to listen to them and determine the best way to collaborate and establish working relationships that benefit all involved.

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