Small business owners must depend on their understanding of accounting basics to save money on bookkeeping expenses. However, they cannot afford to take risks associated with inaccurate accounting, including payroll. Workers want to be paid for their work, as they should. Beyond that, a small business owner is responsible for meeting regulatory expectations regarding small business payroll.
Payroll is about more than issuing a paycheck to an employee. Payroll involves deductions that laws require to be taken. Payroll is an expansive part of accounting with a variety of components. This guide will teach you how to set up payroll for small businesses and manage payroll for small businesses so that your company remains compliant.
What Factors Impact Payroll for Small Businesses?
Taxes, employment laws, the employee and the scope of their job function, and record-keeping all impact payroll.
Taxes are ordinary around the world. Governments collect taxes from citizens through their incomes. Employment income is the most common income in the world, so governments have set up many regulations to collect taxes timely and accurately. They cannot do this alone. They require employers to manage this process through a process called payroll deduction.
Employment laws determine how small business owners can manage their employees, including how they are to be paid and the minimum wage they are paid. The Australian government requires a minimum wage under the Fair Work Act 2009. This act is always active and reviewed annually. Therefore, it is also essential that a small business owner remains educated on changes to current laws.
The type of employee impacts how you manage payroll. An employee can be a permanent employee or a temporary employee. Their salary range also affects reporting requirements.
Payroll also generates a lot of paperwork. Employees receive pay stubs from you. Payroll produces much supporting documentation that you’ll need to complete tax filings. It’s a good rule to hold onto payroll records for seven years. Not only does this help you, but it also helps your employees. You, them, or both may need to reference hard files of payroll records in the future.
Payroll Compliance in Australia
Australia has several compliance factors for payroll. These cover minimum wage, paid holidays, leave policies, and record keeping. Many of these regulations are common in most countries, but Australia has set mandatory compliance factors. Small business owners must abide by these to be compliant.
National Employment Standards
The National Employment Standards (NES) are a set of entitlements employers must make available to employees. There are currently eleven.
- Maximum Weekly Hours
- Flexible Working Arrangements
- Ability to convert to permanent employment status
- Parental
- Annual Leave
- Personal Care Leave/Family Leave
- Community Service Leave
- Long Service Leave
- Public Holidays
- Termination Notice/Severance Pay
- Fair Work Information/Casual Employment Information Statements
Small businesses must provide these rights or face penalties. There are eight that affect payroll.
Maximum Weekly Hours
Employers cannot unreasonably request that employees work more than thirty-eight hours weekly.
Leave
There are five leave standards under the NES. Employees’ rights based on their tenure are parental, annual, and long service leaves. Community service, personal car, and family leaves must be provided regardless of the length of employment tenure.
Public Holidays
Public holidays are awarded to employees based on the Australian territory they work in. The territory affects how much the employee is compensated for them.
Termination Notice/Severance Pay
Employers must provide written notice to an employee about termination or layoff. There are exceptions to consider. In addition, the notice period is based on the business industry.
Accurate Record Keeping
Small business owners should keep business records always. Payroll and employee records are at the top of the list. Australia mandates employee records to be kept for seven years.
Examples of records that must be kept are:
- Pay, Leave, and Hours Worked
- Expense Reimbursements
- Workers Compensation Information
- Superannuation Contribution Details
These items are related to the NES. Show that you are compliant by keeping records safe from destruction and theft.
These are just some of the types of records that should be kept. Although not required by the Australian government, you should keep records from the hiring process, such as resumes and job applications, performance reviews, and employment contracts.
Payroll records should also include your payroll schedule and pay period records. Pay slips should be kept for seven years, and they should be accurate and show deductions, gross pay, and the employee’s pay rate. If an electronic deposit is set up, keep records of bank account information, and any authorization forms the employee signed for direct deposit.
These records provide an audit trail that will safeguard you from liability or issues related to unpaid or underpaid taxes.
Employee information such as bank accounts, full names recorded, and service tenure helps auditors verify how much tax you should have paid. It can also help if the employee is under an audit for their tax obligations.
Recording leave details can insulate you from any claims of employee mistreatment. If an employee files a complaint that they were not offered or received leave that the NES guarantees them, your records will prove if the claim is valid.
Modern Awards
Modern awards are a part of the NES. They set standards for how employers are to pay employees and manage how and when they work. The list of modern award entitlements are:
- Pay
- Hours of Work
- Rosters
- Breaks
- Allowances
- Penalty Rates
- Overtime Pay
The Modern Awards fact sheet from the Australian government gives a high-level overview. The national workplace relations system covers employees covered under modern awards. Some criteria must be met. Every employee will only be covered for some awards. Some awards are unavailable for specific pay ranges and industries.
Small business owners must comply with Australia’s standard for modern awards. A few stipulations and circumstances affect how a small business complies with modern awards, such as if the company is covered by a registered agreement, which is similar to an employment contract. In the absence of a registered agreement, modern awards rules are followed.
Payroll Tax & Other Deductions
Payroll tax and other deductions are the primary reason for payroll management. Proper payroll management protects the business from a compliance failure. Taxes and deductions reporting is time sensitive. The Australian government requires them to be reported and paid in the correct period. It is imperative to manage payroll records to prevent penalties properly.
This is where Single Touch Payroll (STP) plays a role. STP is a government-led payroll tool that makes it simpler for small business owners in Australia to manage their payroll deductions and meet compliance. STP is now mandatory for all businesses in Australia.
STP has had two roll-out phases. With phase two, businesses can report required information about employees to multiple government agencies through one portal. This expansion of STP has made it easier for businesses to manage their reporting.
In addition to the STP registration, businesses in Australia must register for Pay as You Go (PAYG). PAYG is a system that facilitates tax payments to the ATO. Small businesses in Australia are required to register for PAYG even if they do not have employees to deduct and pay taxes for.
The benefit of the PAYG for business is that it allows the end-of-year anticipated tax bill to be paid in installments throughout the year. The ATO will notify all companies that are required to issue tax payments periodically, but as a rule, businesses of a certain income threshold.
PAYG also has a withholding system for employee or contractor wages. This system pays taxes to the ATO on behalf of the employee. Businesses can visit the ATO website to register for PAYG.
Payroll Solutions for Small Business
Accounting payroll has many moving parts. Small businesses can manage payroll through manual recording methods with spreadsheets for calculations and filing cabinets for hard copies of records. This method may require much oversight since errors are more likely to occur.
Spreadsheets are an age-old, tried-and-true method for managing payroll, but most small businesses use accounting software and apps to manage their payroll.
The pro to payroll software is access to automation tools and integration with bank accounts. Some software also makes it easier to collect information from employees electronically. The downside is payroll software requires someone to learn the system and understand accounting principles well.
As businesses grow, they eventually turn accounting management over to a bookkeeper. Bookkeepers are specially trained to account for accounting transactions which include payroll. However, because a bookkeeper is trained to manage end-to-end accounting, they may not be up to date with the changes in Australian payroll and labor laws.
The best way a small business can ensure its payroll is managed correctly is to outsource it to a payroll provider. Payroll providers specialize in processing payroll and will remain current on changes to the payroll laws in Australia.
Set Up Payroll for New Employees
A small business that manages its payroll in-house can follow this essential guide to set up its payroll.
- Collect and verify employee personal information: Full name, date of birth, and taxpayer number. This can be collected from the employee application, identification verification, and any applicable tax forms the employee completes.
- Set up qualifying entitlements and awards and ensure they meet the NES. Review the employment contract, job description, and working hours to determine what entitlements and awards the employee should receive.
- Determine the employee’s tax liability and super requirements. Use the super tool and tax form as a guide.
- Set up STP. This can be done through the ATO website.
- Track hours and issue pay slips on time to the employee. Pay slips should be recorded and stored for future reference.
- Conduct monthly accounting processes to reconcile payroll with the business bank account. Use an accounting system, bookkeeper, or payroll administrator to help facilitate the reconciliation.
- Use PAYG to verify payroll records of employee withholdings reconciled with PAYG payments.
- Any discrepancies should be updated in your payroll system. Keep track of records and changes of records for seven years.
Final Word
As a small business grows, the owner may need help to handle all payroll tasks. With so many requirements to be met with payroll requirements in Australia, a company can easily make mistakes and miss regulatory actions.
Small businesses must create a straightforward process to set up and maintain payroll. It may be a better solution to hire a payroll service to do the heavy lifting to ensure you maintain compliance. A payroll service can work with employees directly and help the small business owner focus on other aspects of the business.
Recent Comments