Small businesses, especially family-run ones, require careful attention to payroll for closely held employees, such as family members, directors, and shareholders.
The Australian Tax Office (ATO) mandates that all employers adhere to Single Touch Payroll (STP) reporting requirements regardless of the employee’s relationship to the business.
However, small businesses with fewer than 19 employees have some flexibility in how they meet these obligations. In many cases, small businesses may also have closely-held employees
Understanding Closely-Held Employees
Closely held employees are individuals directly related to the business entity from which they receive payments. This category typically includes:
- Family members working in a family business
- Directors or shareholders of a company
- Beneficiaries of a trust
For small businesses, closely held employees are part of the team, but how you manage their payroll might differ from that of other employees.
Single Touch Payroll Reporting Obligations
Single Touch Payroll reporting is mandatory for all employees, including closely held payees. The main difference lies in the flexibility small businesses offer in reporting this information. You can choose to report the pay of closely held employees in one of two ways:
- With Each Pay Period: Just as you would for regular (arm’s length) employees, you can report the payroll information for closely held employees on or before each payday.
- Quarterly Reporting: You can also opt to report this information quarterly. This option might be more convenient for small businesses that prefer a less frequent reporting schedule.
However, for arm’s length employees – those who are not closely related to the business owner – Single Touch Payroll reporting must be done on or before each payday without exception.
Deciding the Best Approach for Your Business
Choosing between quarterly and regular reporting depends on what works best for your business.
Quarterly reporting might be a practical solution if your closely held employees have irregular pay schedules or if managing weekly or fortnightly reports feels burdensome.
On the other hand, some businesses may prefer to keep all payroll processes uniform, opting to report both closely held and arm’s length employees together during regular pay periods.
Regardless of the chosen approach, it’s essential to maintain accurate records and ensure that all reporting is timely. This not only helps in staying compliant with ATO requirements but also avoids potential penalties.
Other Payroll Obligations
While Single Touch Payroll reporting is a significant part of payroll management, don’t overlook other obligations.
For example, businesses must avoid pay secrecy practices and ensure transparency in how wages are determined and reported.
Additionally, maintaining up-to-date records and ensuring fair pay practices are vital responsibilities that all employers should uphold.
While managing payroll for closely held employees in a small business comes with specific requirements, the flexibility in reporting can be adapted to suit your business needs.
By understanding your obligations and choosing the best reporting method, you can ensure smooth and compliant payroll management for your closely held employees.
Speak with your tax adviser to ensure you are meeting your obligations, maintaining compliance standards, and are prepared for a smoother journey with your small business.
