Category: Legislation changes

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Key things to include in your reporting and governance structures for misconduct

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission) has highlighted how detrimental misconduct can be to a business and industry. In response to the Royal Commission, ASIC has announced that it will be embedding staff into financial service organisations, starting with the Commonwealth Bank. One reason they’re doing this is to focus on the bank’s governance and reporting frameworks for misconduct. If this initiative is a success, ASIC has said that they’re keen to extend it to other industries.

With this in mind, it’s particularly important for you to look at your own business’ reporting and governance structures for misconduct.

What is misconduct?

According to the Royal Commission’s Interim Report, the majority of misconduct related to the pursuit of short-term profit at the expense of basic standards of honesty. But misconduct can cover many different aspects of behaviour in the workplace from abusive language to bullying to engaging in theft, fraud or unethical behaviour.

Your misconduct reporting and governance framework should cover all potential types of misconduct in your business.

Robust policies and reporting processes are key

Every business, no matter how small, should have some processes for misconduct to be reported both to senior management and to the board.

Your business policies outline what your organisation accepts and doesn’t accept when it comes to the conduct of your staff. It’s important to review your policies periodically to make sure they keep up with the needs of and changes in your organisation. If your business has grown significantly recently, then it’s possible that your policies may also need to be updated to reflect the organisational changes.

Your misconduct policy should outline what constitutes misconduct in your organisation and how different types of misconduct should be reported and dealt with. This includes outlining what the consequences of misconduct are and what your disciplinary processes are. Different types of misconduct may have different disciplinary measures to reflect the seriousness of the misconduct.

The reporting processes should also provide who misconduct should be reported to in the organisation and how they should deal with it. It should also make clear what type of misconduct must be formally reported to the board or senior management and what the format of that report should be. If the misconduct breaches are potentially criminal or may breach a law, how these should be reported to the relevant authority should also be addressed in the policy.

Other policies that are relevant to your misconduct governance framework include your whistleblower and remuneration policies. Your whistleblower policy should outline how your workers will be protected if they blow the whistle on a colleague.  

Remuneration policies were reviewed in detail in the Royal Commission. In particular, how sales staff were incentivised was the subject of much discussion so it can be expected that ASIC and the government will be looking at ways to ensure organisations are encouraging ethical behaviour through their remuneration policies. In anticipation, you should review your own remuneration and incentive programs and consider what messages they may send to staff.

Another important element of your misconduct framework is training. Some businesses have ethical training so that their staff are aware of what the standard of behaviour in the organisation is expected to be. But it’s not enough to just train staff ethics is also about role modelling behaviour at the highest level. This may involve reviewing how your senior management behave and whether staff who act ethically are rewarded or not. This goes to the core of the culture of your organisation, and is just as important, if not more so, than policies and procedures.

The culture of your organisation is driven not only by the behaviour of your senior management but also by other key signals, like how your staff are remunerated.

Boards need to look at their own conduct

If your organisation is reasonably large, many of your board members may not be involved in the day-to-day operation of the organisation, but the board still have the ultimate responsibility for what happens within your company. It can be expected that the government will take a closer look at how boards address misconduct and what they’re expected to do when issues arise.

Your governance and reporting processes are just one way that your board may identify an issue of misconduct. While they may receive regular reports, boards should also be in a position to identify issues independently. They may question senior management, ask for additional information and ask questions so they understand what is being reported to them. If your board has an audit or governance committee they may also get involved in reviewing your policies and processes to make sure they’re robust.

It’s particularly important for individual directors to be proactive when it comes to misconduct because they may be personally fined or even imprisoned if their conduct is in question. If the company is found to have breached the law it may also face significant penalties for misconduct.

When it comes to misconduct, your reporting and governance frameworks must work in tandem. One weakness can undermine the entire system and expose your business to unnecessary risks. If you need help with your company compliance reporting and governance frameworks, get in touch with us.

Crowd-sourced funding – What does it mean for your business?

In September 2017, new crowd-sourced funding (or crowdfunding) laws were introduced. These were designed to help unlisted public companies raise funding from the public. The legislation has recently been extended to allow proprietary limited companies to access crowd-sourced funding as well. This acknowledges that the majority of businesses and startups operate through a proprietary limited structure. According to the Startup Muster 2016, 84.5% of startups operate through a proprietary limited company.

Proprietary limited companies can now raise up to $5 million in 12 months from the public. This means you don’t need to rely on bootstrapping, seed or venture capital funding to get your idea off the ground. You may be able to attract funding from retail investors who are allowed to invest up to $10,000 per year in your company.  

Strict rules apply to crowd-sourced funding

A crowd-sourced funding offer must be made through a qualified intermediary. A crowd-sourced funding intermediary must have an Australian Financial Services Licence and may also have an Australian Market Licence. The intermediary is like a gatekeeper for the offer and makes sure that investors are protected.
To be eligible your company must:

  • Have its principal place of business in Australia
  • Have a majority of its directors ordinarily residing in Australia
  • Have less than $25 million in consolidated annual revenue and gross assets
  • Not be listed in Australia or overseas
  • Not have a substantial purpose of investing in other companies or schemes

This gives you the opportunity to find your supporters. Good investors will help you build brand awareness and support your company as it grows.  
The crowd-sourced funding scheme has several factors that you must meet when making an offer for funding. These include:

  • Providing a crowd-sourced funding offer document. This must expressly state that it’s an offer under the crowd-sourced funding regime and include a range of information about your company and the offer. It must also be published on your crowd-sourced funding intermediary’s website. Some things it must include are:
    • A general risk warning to investors. The wording of this must be very specific and is designed to highlight the potential risks of investing in early-stage companies.
    • Information about your company including its organisational structure, business strategy, business model, main risks and financial statements. It must also include information about the company’s directors and senior managers like their experience and any legal or disciplinary action they’ve had.
    • Information about the offer including how the funds raised will be used, what rights will attach to the shares and any payments to related parties.
    • Information about investor rights under the offer including the cooling-off period of five days, communication facilities and the reporting and corporate governance obligations of the company.
  • Making sure that the offer is only advertised in line with the legislation. Any advertising must include specific disclosures about the offer and there are specific restrictions around the use of phone calls and other forms of advertising for a crowd-sourced funding offer. Advertising must also not be misleading or deceptive.
  • Making sure that every director and person named in the document has consented to the publication of the offer document.

It’s also important to know that any funds that are raised under the offer can not be used to invest in other companies, entities or schemes. They also can’t be loaned to related parties. Your company is also restricted to having one crowd-sourced funding offer available at any time.

Crowd-sourced funded businesses also have special obligations

Once you raise funds under the crowd-sourced funding scheme, there are very specific requirements that your business must comply with. These include:

  • Having at least two directors.
  • Preparing financial and directors’ reports each year that meet accounting standards.
  • Once you’ve raised $3 million or more from crowd-sourced funding you’ll need to have your financial reports audited.
  • Getting shareholder approval for certain related party transactions. These rules also apply to public companies under the Corporations Act.
  • Maintaining a comprehensive company register that includes details about crowd-sourced funding offers and all crowd-sourced funding shareholders.
  • If your company is a large proprietary company, it must also pay a flat annual levy to ASIC under its Industry Funding model. Small proprietary companies only have to pay their annual review fee.

There are also some specific exemptions that will apply to your company once it raises crowd-sourced funding. These include:

  • The number of shareholders through crowd-sourced funding will not count when considering whether the company is still a proprietary company. Generally, proprietary companies that have more than 50 non-employee shareholders are required to convert into an unlisted public company, but an exception is made for any crowd-sourced funding shareholders. However, if a crowd-sourced funding shareholder sells their shares, the new shareholder will not fall within this exemption. So it’s important to keep track of all your shareholders.
  • Unlisted companies with more than 50 shareholders are subject to the takeover rules under the Corporations Law. These rules restrict how the company can raise funds, and affect the control and voting rules for the company. They can also add to the cost of compliance for your company. Companies that have crowd-sourced funding will be exempt from these rules.

Crowd-sourced funding is a good opportunity for your business to access new investors, but it also has many obligations. If you’re thinking about crowd-sourced funding for your business it’s important to think carefully about whether it’s best for your business. This may include considering who your target investor market will be and preparing all your materials to suit their needs. If you do receive funding, you’ll also need to make sure that you’re able to deliver what you promise. This may require you to put in place a plan and the necessary infrastructure to meet your reporting requirements.

If you’d like some help setting your business up for crowd-sourced funding, get in touch.

What small business needs to know about ASIC’s corporate plan in 2019

ASIC has recently released its Corporate Plan for 2018-19. The document highlights just how important small business is to the regulator and to the economy. Making up more than 20% of gross domestic product and employing over 50% of the Australian workforce, small businesses are the backbone of the Australian economy. In 2017-18 more than 360,000 new business names and 244,000 new companies were registered in Australia.

In this article, we highlight some of the key areas that ASIC will focus on in the coming year to support and monitor this sector.

Ensuring the fair treatment of small business

ASIC aims to support small business by looking at ways to ensure they are protected from unfair practices. One of the biggest changes that has been introduced recently was to the unfair contract terms legislation, which came into effect on 12 November 2016. This legislation protects small businesses that enter into or renew any standard form contracts that are either valued at less than $300,000 if an up-front contract or $1 million if the contract operates for more than 12 months.

Under the legislation, unfair contract terms must be removed from the contract or operate as if they don’t exist. A term in a contract would be unfair if it:

  • Causes a significant imbalance between the parties’ rights and obligations
  • Isn’t reasonably necessary to protect the legitimate interests of the party that would benefit from it
  • Would cause financial or other detriment to a small business if it was relied upon

In its corporate plan, ASIC has indicated that it will be reviewing contracts with lenders, in particular, to make sure they’ve removed any unfair terms.

ASIC will also continue to investigate a range of other misconduct or wrongdoing that may negatively impact small businesses and proactively conduct surveillance.

Improving small business tools and resources

ASIC provides a wealth of information, tools and resources for small business and will continue to improve and upgrade these services in the coming year.

Its Small Business Hub covers a wide range of topics including:

  • What you need to know about structuring and setting up a small business
  • What legal and compliance obligations small businesses have
  • What things you need to do if your small business stops trading
  • Information about the obligations for directors of a small business
  • How to change the structure of your business from a sole trader to a company

The MoneySmart website is also a dedicated resource to provide free, independent guidance about money. While it has a lot of information that is helpful to individuals, it also has some tools that are specific to small business. Recently ASIC launched the First Business online modules and app on this platform. This is designed to help people who are thinking of setting up their first business understand if they’re ready for the challenge and to show them what legal compliance obligations it will involve. To help get small businesses started, the app also offers tips on how to develop business networks.

Improving registry services

ASIC manages the companies register, business names register and other corporate and professional registers. To make it easier for small business to use these services it has been streamlining and consolidating them into a single online portal that connects with the Australian Taxation Office. As part of this process, ASIC is committed to continuing to look at new ways to modernise the registries and forms to make it easier for businesses to interact with them.

ASIC estimates that this and other recent initiatives have reduced annual compliance costs for business by $455.7 million since 2013 and saved businesses over $209.8 million in registration fees since 2012.

Making sure small businesses are compliant

ASIC is committed to ensuring that small business meets its legal and compliance obligations. Some of the activities that it intends to pay particular attention to in the coming year include:

  • Illegal phoenixing: This involves directors who intentionally and dishonestly prevent employees and unsecured creditors from accessing their fair entitlements to a company’s assets. ASIC is working with the Government’s Phoenix Taskforce and Serious Financial Crime Taskforce to take action against directors who are involved in these activities.
  • Financial reporting obligations: This involves ensuring that companies are meeting all of their reporting obligations. In 2017-18 ASIC prosecuted 382 entities or individuals for 734 offences relating to their failure to keep books and records.
  • Director misconduct:  ASIC uses its significant power to take administrative, civil or even criminal action against directors or officeholders who do not meet their duties under the law. It has also initiated a campaign to identify and remove directors who have a dishonesty-related criminal conviction.

ASIC will also continue to approach small business compliance with a forward-looking lens through its Innovation Hub. Specifically for fintech startups (many of whom are small businesses), the hub will continue to allow them to develop and test their ideas in consultation with ASIC.

ASIC will continue to enforce the law throughout the year so it’s important to make sure your business remains compliant even during the Christmas break. While ASIC closes its office over the silly season, your review payments may still be due. When you’re arranging to pay your fees, make sure you check the due date and ensure that your payment reaches ASIC in time, especially if you’re sending a cheque. This is particularly important to avoid late payment fees.

CCASA can help take the worry out of your company compliance by managing all of your obligations with ASIC on your behalf. We’ll hold your hand through the process and advise you exactly what you need to do and when. If you’d like to learn more about how CCASA can take care of all your company compliance needs get in touch with us. We’d be happy to help.

What you need to know about single touch payroll

Single touch payroll was introduced on 1 July 2018 for employers who had 20 or more employees at 1 April 2018. If you were successfully granted a deferral or your payroll software provider was granted a deferral you may have a little longer before you’re required to implement single touch payroll in your business. Regardless, it will be expanded to all employers from 1 July 2019.

But what exactly is single touch payroll and how does it benefit your business?

What is single touch payroll?

Single touch payroll means that you will report any payments you make to your employees to the Australian Taxation Office (ATO) like salary, wages, PAYG withholding and superannuation at the time you make the payment. Rather than waiting to report back periodically, it will be done automatically through your payroll system.  

While there are many things to take into account with single touch payroll, the first one is calculating what your headcount was at 1 April 2018 and working out which payments you need to report. When determining if you had 20 or more employees at 1 April 2018, make sure you don’t count the following people:

  • Any employees who stopped working for you before 1 April 2018
  • Casual employees who didn’t work for you in March 2018
  • Any independent contractors or people on labour-hire
  • Your company directors or other office holders

Even though you don’t count these people when calculating how many employees you had, you will need to include payments that you make to them through your payroll in your single touch payroll reporting.

Five benefits of touch payroll

There are many benefits of touch payroll for your business. These include:

1. It streamlines your reporting

Single touch payroll will help you streamline your reporting obligations and reduce the amount of reporting you need to do. Every time you pay your employees, your single touch payroll data will be sent automatically to the ATO. This means you comply with some of your taxation and superannuation guarantee obligations in real-time. Rather than having to maintain multiple reporting processes, everything will be done with the click of a button.

This will make the process of reporting PAYG payments much simpler. You will also report your employee’s superannuation liability or ordinary time earnings through single touch payroll and superannuation funds will report directly to the ATO when they receive a payment from you on behalf of your employees. This change in process will help the ATO see what your superannuation obligations and payments are without needing to ask you.

If you make a mistake, don’t worry. You can correct an employee’s year-to-date amount the next time you pay them.

As single touch reporting is meant to make reporting easier, you can also choose to do some additional reporting through the process. While it’s not mandatory, you may choose to include reportable employer superannuation contributions (RESC) and reportable fringe benefit amounts (RFBA). As long as these are reported by 14 July in the next financial year and you include a finalisation declaration, your business will no longer need to provide the ATO with payment summaries or a payment summary annual report. This will also help you to streamline and automate your compliance obligations.

2. Payment summaries are a thing of the past

You will no longer need to provide payment summaries to your employees when you pay them. These will now be called an Employment Income Statement and your employees will be able to access them directly through the MyGov online portal.

This also means that the final payment summary (otherwise known as a group certificate) at the end of each financial year is now a thing of the past. Instead, the ATO will tell your employees when their Employment Income Statement is ready for them in the MyGov portal. Once they have their Employment Income Statement, your employees will be able to prepare their own tax returns.

Your employees will also benefit from single touch payroll when it comes to tax time. That’s because their myTax will already be filled with their payroll information. This will make it even easier for them to complete their own tax return.

3. Reduces errors in your BAS

Thanks to single touch payroll, completing your Business Activity Statement (BAS) will also be easier. The ATO will pre-fill your BAS with the payroll information that you provide. This should reduce your chance of making an error or omitting a payment and give you more comfort that your BAS is correct.

4. Makes employee onboarding easier

An important part of hiring a new employee is making sure that you have all of their information so you can pay them. Under the single touch payroll system, you will no longer have to ask new employees for their tax file number or superannuation information. Rather than chasing up a paper trail, you can just go straight to MyGov and access it yourself.

5. It’s a good opportunity to check your processes

The introduction of single touch payroll is also a good opportunity for you to make sure your payroll data is in order. If you haven’t already, take this opportunity to see if your master payroll data has any errors. Check if you’re paying all of your employees correctly, and make sure that superannuation is being calculated accurately. This can help you avoid the potentially costly embarrassment of over or under-paying anyone.

You can also check that all your employee information is up-to-date. This could include checking that names, addresses and dates of birth are in order and any employees who are no longer with your company have been removed or archived.

If you’re rolling out single touch payroll in your business, it’s a good idea to speak to your legal or accounting advisers to make sure you’re doing everything by the book. If you’d like to know more about the benefits of touch payroll, get in touch with CCASA.