In Australia, payroll taxes are determined based on a business’ total annual wages bill, with payroll taxes coming due on liable wages as the state or territory’s payroll tax thresholds are crossed. For small businesses and new startups, however, payroll tax may come as a nasty surprise. In the past year, the government has cracked down on wage underpayment, often in the form of unpaid superannuation or penalty rates. As a result, many businesses have found themselves facing additional unexpected wage costs. Those wage repayments, however, are only part of it.
Superannuation, fringe benefits, and penalty rates (which were also unexpectedly raised starting on 1 November 2018) are all liable wages. That means that businesses scrambling to cover these costs will also need to pay additional payroll tax on those wages. In order to ensure their stability and steady growth going forward, business owners need to be aware of, and prepared to manage these kinds of surprise costs.
Businesses often don’t know what they’ll owe
Even business owners who are aware of this issue may have difficulty determining whether, or how much payroll tax they owe. Payroll tax obligations depend on a number of factors, including what wages are paid, whether employees are shared with another business, or if the business is a part of a group. More confusingly, various states have different thresholds and rules about payroll tax. This means that a business that operates in multiple states may need to register in one state, but not in another, even though its nationwide wage payments ultimately determine whether taxes are owed.
To compound this confusion, many of the businesses found to underpay wages have done so out of ignorance rather than malicious intent. That means that business owners often don’t realise that they’ll be facing additional costs at all, much less that those costs may incur additional penalties and taxes. As a result, it’s not unlikely that unprepared SMEs might find their growth plans delayed or interrupted.
Using financing to protect your business
When the ATO comes knocking, businesses need to be able to react quickly if they want to make sure that they’ll be able to continue to pursue their operational goals normally. That means finding ways to come up with necessary funds quickly. To do that, it’s important to be aware of the financing options that are available, and to be able to deploy them rapidly.
Invoice financing is a financing tool that allows businesses to come up with additional funds without going into any actual debt. Instead of borrowing money, they exchange an outstanding invoice for most of its value up front, in exchange for a predetermined fee. The financial institution then deals with the client to collect the payment, before issuing the remaining funds. Not only is this incredibly useful for businesses who need a nearly instant advance on their incoming funds, it’s also a great way to come up with additional working capital for businesses who may not qualify for a loan from their primary institution. Since it doesn’t actually involve borrowing any money, it doesn’t require any credit check.
Supply chain finance
Supply chain finance helps businesses redirect their existing working capital. It does this by providing businesses with a third party credit fund that can be drawn upon to pay suppliers in lieu of their current working capital. The balance on that fund is then paid off in its own time, often significantly later. This means that a business that is suddenly forced to pay out additional wages and taxes won’t be forced to delay outgoing payments to suppliers. Instead, they can simply use supply chain financing to absorb the initial financial shock, and pay down the balance over time.
Businesses face a lot of unexpected costs, even when the government isn’t cracking down on wage underpayment and tax issues. It’s important to be prepared to deal with these on short notice. Alternative finance institutions like Fifo Capital offer direct, 1:1 service with a dedicated financial representative who can not only explain how different financing options work, they can advise you on exactly which tools are best for your business’ particular situation. Over time, that representative will learn more about your business, and be able to offer even better feedback and support. By taking control of their financing options in this way, businesses can ensure that cash flow interruptions won’t interfere with their growth or success, no matter what kind of cash flow interruption comes their way.