How to nail your business payroll
Payroll can be one of the most stressful parts of running your business.
However, it also happens to be one of the most important parts.
Mistakes can cost your business too with both the tax department and your employees.
At Payroller, we don’t want this to happen to you. Follow our 5 part guide below to nail your business payroll.
Guide for Business Payroll
Part 1 – Planning for payroll
Let’s face it, payroll is definitely not the first thing you think of when you start a new business.
However, running payroll is extremely important in regards to the financial and administrative side of your business.
In this section, we’ll cover:
- Why your business needs a payroll system
- Ways of running payroll – manage payroll yourself or get help from an accounting professional
- Types of payroll systems and how to choose the best one for you
- Setting up your business for payroll
- Understanding payroll costs
Why does your business need a payroll system
This isn’t necessarily something you can choose.
If your business only employs contractors, you don’t necessarily need to use payroll software.
However, as soon as you start to employ even just one employee on a casual, part-time or full-time basis where you pay them a wage or salary, you need a payroll system.
The Australian Taxation Office (ATO) brought in new laws that require all Australian businesses with 1 or more employees to be using STP–approved software to run payroll.
This even applies to you if you are self-employed and your business pays you a wage.
We would recommend speaking to your accountant or bookkeeper about this to work out what is best for your business.
Want to learn more about what Single Touch Payroll (STP) is? Find out everything you need about STP and the Single Touch Payroll Phase 2 updates.
What are different ways of running payroll
All Australian businesses need to be using Single Touch Payroll (STP) software to run payroll.
You do have a few options with how you do this. You can choose to run payroll yourself using software.
You can hire an accountant, bookkeeper or payroll manager to do it for you. STP approved software such as Payroller provides an Agent Portal for accountants, bookkeepers and tax agents. You can easily invite your accounting professional to manage your payroll using Payroller on your behalf.
What option you choose ultimately comes down to your budget and your own confidence with running payroll on your own.
How to find the best payroll software for your business
There are a few things to keep in mind when choosing your payroll software.
Things to think about in relation to your business:
- The number of employees you have
- Ease of use
- Suitable features
Features that you’ll need to have in payroll software:
- Tax and super calculations
- Leave reporting and forecasting
- Security
- Options for overtime, bonuses, deductions and allowances
- Options for superannuation, tax and employment settings
- Integrations
Things to think about in relation to the cost of payroll software:
- Monthly or annual cost
- Any additional or in-app purchases
- Your own budget
What you need to set up your business for payroll
We’re going to assume that your business is already operational.
The things you’ll need to get your business payroll ready include:
- Your business’ legal name and ABN
- Payroll details – work hours, pay rate, payroll start date
- Employee details – personal, employment, tax, superannuation
What are the costs involved in payroll
On top of your employees’ usual wages, there are a few additional costs that you’ll have to pay as the employer.
These additional costs may include:
- Tax
- Superannuation
- Paid leave (annual and sick/carer’s)
- Bonuses
- Allowances
- Deductions
Part 2 – Paying Employees
So, you’ve got the hang of what is involved in payroll but there’s still a bit more to it.
You now need to work out the type of employees you have and how you’re going to pay them.
This section will cover the following topics relating to having staff in your business:
- The difference between Employees and independent contractors
- Deciding on employment status and payment terms for staff
- Adding new hires to payroll
Ending employment for staff
What’s the difference between employees and independent contractors
The first thing you need to work out is whether you business will employ independent contractors or employees.
These different types of workers receive slightly different benefits. This will affect your payroll.
An easy way of thinking about the difference is that an employee works for you whereas a contractor does the work for you.
Contractors don’t have to be included in your payroll. They don’t receive the same benefits that an employee does in terms of leave entitlements.
You can choose to pay contractors using invoicing solutions. This means that it is not up to you as the employer to calculate their tax.
However, employees must be included when you run payroll.
Employment status and payment terms for your staff
Hiring is just the first step.
Next, you’ll need to decide the following:
- How much you’ll pay staff
- What is their pay rate (hourly, weekly, per annum)
- What is their employment type (casual, part-time, full-time)
- What are their weekly hours
- How frequently will you pay them and how often you’d need to do pay runs
The employment type is particularly important. A casual or part-time employee won’t receive the same kind of benefits that a full-time employee will.
Make sure you’re careful to adhere to all minimum wage requirements.
Hiring new employees
You’ll need to gather some personal information from new employees when they join your business.
Necessary employee details to gather for payroll include:
- Personal details
- Contact information
- Payment/bank details
- Superannuation fund name and number
- Employment information
- Tax File Number
- Any tax exemptions
- Status of residency
Ending employment for staff
In some cases, there are certain things you must provide your employees if they choose to leave.
Usually this is agreed upon in the original employment contract.
If you’re unsure about what you need to provide, we recommend speaking to your accountant or bookkeeper about this.
Part 3 – Tax
Tax is confusing for most people. Tax plays a very large part in your payroll.
This section will cover important factors to consider for your business around tax including reporting on incomes taxes for employees and payroll taxes that apply in your state or territory.
How do you report income taxes in payroll?
With Single Touch Payroll (STP), pay as you go (PAYG) withholding on employees’ wages are sent to the ATO every time you run payroll. The reporting of income tax information for employees is automated. This makes it easier at the end of each financial year for employees to lodge their individual tax returns.
When do you need to do payroll tax?
As the employer, you’re in charge of the payroll taxes on all employee wages and your own if you’re employed by your business.
You do not need to do this for contractors.
In your payroll, you’ll need to calculate the amount of tax accumulated for the employee in that pay run. Read more on what payroll taxes are in our overview for Australian businesses.
You’ll need to also include any tax exemptions that the employee may have.