It’s time for you to start hiring some employees. Hiring your first employee is a huge accomplishment for your business! However, before you start celebrating, you need to plan for payroll, and it’s no small feat. Unfortunately, payroll is not the most exciting aspect of running a small business, but it is definitely an important part of ensuring your business goes smoothly. And it pays to get payroll right from the very start. The smallest mistakes can cost you and cause you and your employees financial stress in the long run. Wages and benefits are complicated to navigate. And you may not be too keen on the cost of outsourcing payroll, however – payroll is something you can learn, it’s just a matter of wanting to.
What exactly is payroll?
Knowing exactly what payroll is may seem obvious, but payroll is a lot more complicated than what we think. It can quickly become confusing with all the rules, terminologies, and legislations you need to follow. Payroll involves the process of paying employees their wages and superannuation benefit. Employee wages need to be processed withholding the appropriate taxes. And secondly, payroll keeps the data and records that are kept for your employees’ wages and salaries. This also includes their leave entitlements, benefits, and other contributions.
There are three parts to the payroll process which include:
- Calculating employees’ gross salaries / wages including their overtime and special contributions. Employers need to ensure they are correctly renumerating their employees based on their correct employment status (salary, contractor, apprentice etc). All relevant taxes and other deductions are withheld from their gross pay.
- Compensating employees via EFT or through cash payments.
- Ensuring all records are kept for each individual and for the business. These records are needed for the Australian Taxation Office.
Moreover, Payroll can quickly become complicated – which is the exact reason why businesses often outsource to a bookkeeper or tax accountant.
Before you start wondering if you can do payroll yourself, we recommend it is best that you educate yourself on the process, and make a decision on whether you will do it manually or via payroll software. Regardless of the method you decide on, you will need to start gathering information – as the same information will be used for both processes. To help you make the process a bit easier, we have a helpful checklist to ensure you meet your responsibilities. Completing each step will help you be on your way to transitioning to a smooth payroll process.
1. To outsource payroll or do in-house?
It’s is really important to understand the work that goes into your payroll, and the knowledge you need to be across when it comes to tax laws. If you have the knowledge, time and energy to dedicate to managing your payroll manually and in-house, then this solution will save you money and give you control over your payroll. If you feel that it is too overwhelming and not manageable, then it is best for you to work with a bookkeeper or your accountant. Whether you decide to do it yourself, or use a bookkeeper, we recommend you work with a simple payroll software to help you manage the process.
2. Record gathering
When you hire a new employee, it is a requirement that you gather information for taxation purposes. This information is needed for the Australian Taxation Office. It’s helpful to complete this during the employee onboarding process. The information required includes:
- Employee full name, and contact details
- Australian Tax File Number
- Superannuation fund. If they are not part of a superannuation fund, it is helpful for you to assist in choosing a fund.
- The type of employment contract they are hired under. This includes whether they are full time or part time, casual, apprentice, trainee, or contractor.
- Salary and wage deductions.
- If they are receiving any benefits, or allowances.
- What leave entitlements they are eligible for.
- Bank details for direct EFT payment.
3. Ensure you’re compensating correctly
It is a legal requirement to pay your employees according to the minimum award wage. To ensure that you are adhering to payroll entitlements for employees you can view the following resources:
- Australian national minimum wage
- National Employment Standards (NES)
Once you are across minimum wages, you also need to develop a payslip for your employees. You are required to supply a pay slip with information about an employee’s wage within a day of their pay. It can be in electronic form or hard copy. The Australian Fair Work Ombudsman has some great resources on their website. With their Pay and Conditions Tool (PACT) you can calculate an employee pay rate, leave, notice and redundancy and shift. The site also has information about workplace entitlements during COVID and how to JobKeeper scheme can help your business.
Don’t forget to decide how often you will be paying your employees. Pay cycles are what works for you, and can be weekly, fortnightly or monthly. You need to commit and ensure you are paying consistently and on time, as employees rely on their wages / salaries for their own payments.
4. Understand employee taxes
When you are processing payroll, your business needs to adhere to the Australian Taxation Office taxation obligations. Firstly, you need to register for PAYG withholding, then you need to withhold tax from your employee’s salaries. To understand how much tax you need to withhold, check out the Australian Taxation Office PAYG Taxwitholding.
5. Don’t forget about superannuation contributions!
As an employer, you are required to pay superannuation contributions. An employee does have the opportunity to nominate their own fund, however you also need to identify which fund will be used as a default one if your employee does not have one, or does not provide you with the details of their nominated fund.
6. Single Touch Payroll
Single Touch Payroll is new in Australia and is a government initiative to reduce employers’ reporting burdens to government agencies. It means that you are required to report your business payroll information to the Australian Taxation Office in real-time and with every pay-run.
7. Understand different types of employment
You need to classify your employees correctly as employees, apprentices, trainees, and contractors are treated differently for taxation and superannuation purposes. If you make a mistake on employee’s classifications, you may receive a penalty. It can also break employer / employee trust if you are underpaying or incorrectly renumerating employees.
8. Use technology to your advantage
If you do decide to manage your own payroll, we recommend you find a digital software as employee’s service solution that can help you automate your payroll process. Even if you work with a bookkeeper or tax accountant – it is still worth you while to utilise a software that can be accessed from different persons with different roles.
Working with the software provider and your payroll team (or external payroll team of tax accountants) be sure to determine if the software is secure, how the systems can be accessed, how easily the software can be customised to fit your business (and how much this will additionally cost), and what kind of costing framework is in place. Is it a subscription or upfront cost?
9. Keeping records is important!
The Australian workplace laws require you to keep complete records for all your employees for seven years – this is relevant even after they leave. This is where a payroll software solution comes in handy – it allows you to keep data and regularly save data in the cloud.
There is so much to learn when it comes to learning about payroll. Whether you decide to do it in-house, manually, or with a tax partner don’t ever feel that any question is too hard. That’s why you can call us at RT Taxation & Accounting Services. You can take advantage of our Outsourced CFO Services to leave the administrative hassle of running your small business to the experts and for you to do what you know best. We can ensure your business has all the right payroll tax documents in working order and all exemptions are correct. We want you to be ready if a payroll tax audit comes knocking on your door. Feel confident in our tax expertise and you focus on building your business.