Kundun Consulting

I am often asked how much it costs to employ someone. Often my client will have a need for a short term or part time person to fill a vacancy and they want to know what the “on-costs” component is.

Well you can see from my assessment of the amount above it is around 25% on top of the wages that you pay.

It gets a little worse when you employ someone casually as the super is still payable, assuming they meet the minimum monthly wages threshold of $450, yet you have to pay them a 25% allowance on top of their salary.

There are numerous opportunities where you are able to engage people as contractors but not in all cases. The balance comes back to normal management criteria and ensuring that you get what you pay for. Quite obviously a contractor is not an employee and as such you will gain some benefits and lose others - control being the one that jumps to mind virtually immediately.

The example above was borne out of some work that I did with a client to determine the true cost of employing someone, to see how much it differed from the cost of having them come on as a contractor. In this case we paid the contractor $50 an hour and had the added bonus of having them provide their own laptop and their own insurance coverage. It was a much better result - but it won’t be the same in all circumstances.

And so here is the caveat. Engaging contractors can still have the same consequences as employing a person. The Income Tax Assessment Act does not want people outside of the tax system and thus not having tax deducted from their wages. The superannuation guarantee legislation can still catch the payments to contractors as wages and thus you are forced to pay super in these cases. Finally the workcover and payroll tax legislation can still catch these payments and deem them to be in effect wages in which case you are required to include them in your wages calculations for determining these costs.

So in summary you need to ensure that you get the right advice before you engage a contractor to ensure they will meet your needs and also to ensure that you do not pay “on-costs” unnecessarily.

I have discussed the value of a bookkeeper to your business in another post, so there is no need to go on about it here. Some of you have asked that I provide some guidance as too how your accountants can assist with the management of a bookkeeper.

Your accountant will be the person best placed to manage what your bookkeeper does, how they do it and when they should be using their own limited knowledge to make decisions.

What

The bookkeepers that I have come across unfortunately have a misguided understanding of what they should be doing. Let me highlight with a case that I encountered just two days ago.

A client of mine has a pretty competent bookkeeper, and I have only had this client for a few weeks so have not yet completed a full review of the accounting policies in place. During the review of the March financial reports I inquired as to how exactly the employee leave was managed and accounted for within MYOB. The bookkeeper stepped in and assured me that she had a great understanding of the leave entitlement process and that she had been creating an accrual manually based on a number of different factors. Unfortunately she had ignored a couple of major issues which meant that over the remaining part of the year, we need to “catch up” the accrual to reflect the actual liability, and as such the financial reports had been misstated.

Your bookkeeper should only ever be processing transactions that have source documents? For example, processing invoices from suppliers and payroll timesheets would be ok as opposed to accruing for a telephone invoice that is yet to be received.

Secondly, any entry that required an understanding of legislation or normal accounting practice should not be entered by the bookkeeper without prior review by the accountant.

Solution:         Your accountant should be sitting down with you to determine the extent of work that the bookkeeper should be performing and setting a job description accordingly.

Your accountant should be reviewing the draft financial reports with your bookkeeper face-to-face and providing adjustment journals for the bookkeeper to enter.

Your accountant should be answering email queries from your bookkeeper on any issues that arise which require accounting interpretations.

Your accountant should be involved in the performance review of your bookkeeper.

(Which reminds me - a performance review should be in place for internal and external bookkeepers alike. Make sure that either knows what is expected of them and what they should be achieving.)

How and When

A bookkeeper should have a very clear set of guidelines as to how key financial information is to be entered. Where possible your accountant should be preparing standard recurring transactions within your accounting software that allow the bookkeeper to process transaction without a need to think about what is happening.

Your accountant should be reviewing at least monthly what your bookkeeper is doing until they are confident that the bookkeeper has the right level of knowledge and understanding to deal with situations correctly.

Your accountant should be encouraging your bookkeeper to contact them with queries prior to data entry to ensure that they understand how they should be entered.

And your accountant should be explaining the changes that they have made to your financial accounts, to your bookkeeper, in order to provide an educational update to the accounting treatment of various transactions. This takes a little longer for the accountant but in the long run it will be money well spent.

Conclusion.

If you engage your bookkeeper and your accountant and ensure that there is an open line of communication you will be rewarded with better quality financial reports which will be produced at a much lower cost in the long term. 

When your accountant has confidence in the work that your bookkeeper is performing then they will be in a better position to actually add some true value to their fees and get involved in your business as an advisor - as opposed to a scorekeeper!

I am very sorry but it is now time for my first rant.

People - bookkeepers are not accountants!

I have just started some work for a new client - great you say - yes I think so too. Problem is that they also have an external bookkeeper - charging $80 per hour plus GST.

I am sure some of you have choked down on your lunch, breakfast whatever -  I nearly did.  

Now I am the first to admit that bookkeepers have a place in small business - but it needs to be attached to the end of a very short rope. I have spent the better part of 4 days fixing errors that the bookkeeper has made. Now you might say “So what your getting paid”  To which I reply that it is not my job to fix the errors of someone that should be doing a better job - and I cannot in good conscience charge my client the full rate for what I am doing - that is not value.

All too often I see shoddy work performed by bookkeepers and it is a really frustrating aspect of the industry.  I believe that you should never take on a bookkeeper who  is not supervised by a CPA or ICA registered accountant. If you are relying on their work to provide reporting that allows you to make financial decisions - well I am sorry but you are in real risk of making a badly informed mistake.

Now this post may very well spark outrage from the bookkeeping fraternity.  I am not trying to create a war. I am trying to get some momentum for the industry to develop an operaitonal code of conduct and a method of self administration so that the general standard is improved.

Setting a standard that is adopted voluntarily will be a far better result for everyone - than having regulation thrust upon.