You are having a problem because you are defining the function  test as a prototyped function and then invoking it in a way that disables prototype behavior.

Had the function declared and defined with the  (\%) prototype
    sub test (\%);
    ...
    sub test (\%) { ... }
been invoked as
    test(%Record1);
a hash reference would have been passed to the function. Invocation as
    &test(%Record1);
(note the  & sigil in front of  test) causes the  %Record1 hash to be 'flattened' (the prototyped behavior of taking a reference to an explicit hash is ignored) and the first parameter in the argument list happens, in the example given, to be the string 'password', which doesn't work as a hash reference. If an explicit hash reference is passed, e.g.
    &test($hashref);
everything works again, but then
    test($hashref);
(note no  & sigil) doesn't work!

The take-away lesson: Don't use prototypes unless you really understand what they do and really need that to be done.

Update: See Prototypes in perlsub (and, for good measure, Far More than Everything You've Ever Wanted to Know about Prototypes in Perl -- by Tom Christiansen).

Update: Added code example:

>perl -wMstrict -le
"sub test (\%);
 ;;
 my %Record1 = ( username        => '$' ,
                 password        => '$' ,
                 emailAddress    => '@' );
 my $hashref = \%Record1;
 ;;
 print $Record1{username};
 $hashref->{username} = 'NOOoooooo!';
 print $Record1{username};
 test(%Record1);
 print $Record1{username};
 ;;
 sub test (\%) {
   my $reference = shift;
   my $test = q{Pigsy's Perfect Ten};
   $reference->{username} = $test;
   print 'in test(): ', $reference->{username};
   }
"
$
NOOoooooo!
in test(): Pigsy's Perfect Ten
Pigsy's Perfect Ten
[download]

In Perl, there is no need to "define" how you are going to use some memory, you just start using it. A wild concept for a C programmer, but this is true. If some hash key doesn't already exist, like below (username), it will spring automagically into existence! This is called autovivification.

Like in C you can pass a reference (like a pointer) to a sub as is done below. There is no need to prefix a subroutine call with &. You have been reading some truly ancient books! You should buy a new copy of "Programming Perl". There is no need and this is actually a bad idea to attempt to define prototypes for a function (subroutine). Below I call test() before it is "seen by the compiler", this is fine in Perl although that would cause big trouble in C. Of course I would not normally split code around a subroutine, but below it is done to show that it is possible. You can put sub test() anywhere in the file you want.

#!/usr/bin/perl -w
# the above (-w) turns on warnings, Windows ignores the path!!

use strict;
use Data::Dumper;

my $hashref={}; #a reference to anon hash table

$hashref->{username} = 'NOOoooooo!';

print "User Name:  $hashref->{username}\n";

test( $hashref );

sub test  
{
    my $reference = shift;
    my $test = "Pigsy's Perfect Ten";
    $reference->{username} = $test;
    print "Inside Sub Test test\'s value is: $reference->{username}\n"
+;
    $reference->{'accountid'} = '234piggy';
}
print "User Name:  $hashref->{username}\n";
print "Account ID: $hashref->{'accountid'}\n";

__END__
Prints:
User Name:  NOOoooooo!
Inside Sub Test test's value is: Pigsy's Perfect Ten
User Name:  Pigsy's Perfect Ten
Account ID: 234piggy
[download]