Payroll is the process of calculating and distributing wages, salaries, and bonuses to employees of a company. It involves tracking hours worked, calculating pay, deducting taxes and other withholdings, and making payments to employees
Payroll is something you have to do if you have a business, and it can refer to any of the foll
- Your business’ paid employees and their employee information.
- The amount your employees are paid in a pay period.
- The process of calculating and distributing employee wages and taxes.
The first two points are elements needed to run payroll. Mostly though, the term ‘payroll’ is used to refer to the third point: the payroll process.
This article provides an overview of payroll as a process.
What are the parts of running payroll?
Key components of payroll include collecting and verifying employee information, calculating gross wages, deducting taxes and other withholdings, issuing payments, and maintaining accurate payroll records. Let’s go through each factor separately.
Employee information
You’ll need to first of all add the employees who you are paying.
You’ll need to include certain information for your employees such as personal details, contact details, payment type, bank and superfund details, employment details and tax details.
Without these, you either won’t be able to run payroll or your payroll will be wrong.
Work Hours
When you go to run payroll or complete a pay run you’ll need to add in the hours that your employees have worked in that pay period
This is important for employees that are paid on the basis of hours.
However, it’s still important for employees on a salary as they need to be completing the correct amount of hours to receive the pay they are being given.
Leave
There are two types of leave: annual and sick/carer’s leave.
Not all employees receive paid leave but if they are working as a part time or full-time worker, you are required to provide them with paid leave
It’s important to know what’s going on with leave as it’s a part of your payroll. Annual leave reports can help you keep track of an employee’s leave balance and transactions.
Your payroll will be affected if an employee has taken paid leave and not completed their regular employment hours.
Salaries and wages
You can choose on what basis you pay your employees.
A salary is a fixed amount that an employee is paid over a given time period. Often an employee is given a yearly salary. This is a fundamental part of employee remuneration packages.
This is then divided by the number of pay periods in the year.
The employee will then receive this amount each pay period.
A wage is based off the amount of hours an employee has worked.
As the employer, you’ll set a rate of pay for your chosen employee and multiply this by the number of hours they have worked.
Overtime
There might be times that an employee works more than their agreed upon weekly hours. This is known as overtime. Overtime pay is normally greater than the normal rate of pay. This will need to be included when you run payroll.
Bonuses
There might be an occasion where you want to give your employee a bit more that’s outside their normal earnings when you do payroll. This is called a bonus. This affects your payroll because you might not want it to contribute to superannuation and it will affect their gross earnings for that pay period.
Reimbursements
At some point, you might also need to reimburse your employee for an expense they’ve had during that pay period.
This is also included in payroll as it will affect tax and superannuation.
Allowances
You might also provide your employee with an allowance at some point. This tends to be done on business trips where an employee may acquire some additional expenses because of the business.
You also will need to include this in your payroll as it can affect tax and super depending on the type.
Deductions
If an employee has purchased any tax-deductible items or incurred any tax-deductible expenses, you’ll need to include them in your payroll.
This is subtracted from their wages and and lowers there taxable income.
Tax
When you run payroll, you will need to deduct the taxes they have incurred in that pay period.
How much is withheld depends on their total earning and any withholding allowances that the employee might have.
Superannuation
Superannuation will need to be paid into an employee’s super fund per pay period.
Their super earning are contributions paid on top of an employee’s wages.
Employee’s are guaranteed a minimum super amount from their employers but an employer may choose to contribute more or an employee can sacrifice some of their salary to go towards their super.
Net and gross pay
Gross pay is calculated during payroll and refers to the total earnings before tax is deducted.
Net pay which is also calculated refers to an employee’s pay after all deductions have been made.
How is payroll processed?
Payroll processing involves several key steps: selecting a payroll system, developing a payroll policy, collecting employee information, calculating gross pay, completing deductions, processing net pay, and maintaining accurate records. These steps ensure compliance with tax laws and accurate payment to employees. For instance, selecting a payroll system might involve choosing between manual processes, payroll software, or outsourcing to a payroll service provider. Developing a payroll policy outlines pay schedules, benefits, and compliance procedures to ensure consistency and fairness across the business.
Master payroll for your business
Running payroll can be super simple. Some business owners choose to outsource their payroll by giving it to a payroll accountant to complete. However, this can be expensive.
The easiest option in regards to both time and cost is to use a payroll software. Good payroll software automates the process for you including making and sending payslips to employees. It also provides insightful summaries through payroll reports.
All Australian businesses must abide by single touch payroll (STP) laws set by the Australian Taxation Office. You need to use a certified STP software such as Payroller, to complete payroll. Learn how to run payroll for your small business with our simple tutorial.
