What you need to do and know to nail your 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.

That's why we've put together this guide that will help you absolutely nail your payroll.

We've split it up into five parts to help you on your way.

Part 1 - Planning for payroll

• Working out whether you need payroll

• What makes a good payroll system

• The types of payroll systems and how to choose the best one for you

• Setting up your business for payroll

• Understanding payroll costs

Part 2 - Paying employees

• Employees and independent contractors

• Employment and payment terms

• Ending or interrupting employment

• Adding new hires to payroll

Part 3 - Taxes

• When payroll taxes apply

• Report payroll taxes

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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.

It's certainly not one of the more glamorous parts of running a business.

However, running payroll is extremely important in regards to the financial and administrative side of your business.

In this section, we'll cover:

• Working out whether you need payroll

• What makes a good payroll system

• The types of payroll systems and how to choose the best one for you

• Setting up your business for payroll

• Understanding payroll costs

Do you 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 a 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.

This is especially important if you're Australian.

The Australian Taxation Office (ATO) brought in new laws that require all Australian businesses with 1 or more employees to be using a Single Touch Payroll (STP) approved software to run payroll.

This even applies to you if your business employs only you and pays you a wage.

We would recommend speaking to your accountant or bookkeeper about this to work out what is best for your business.

Ways of running payroll

As mentioned above, all Australian will need to be using STP software to run payroll.

You do have a few options with how you do this though.

You can choose to run payroll yourself using a software.

Or, you can hire an accountant, bookkeeper or payroll manager to do it for you.

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.

Here are the things to think about in relation to your business:

• The number of employees you have

• Ease of use

• Suitable feature

Here are the things to think about in relation to the software:

• Tax and super calculations

• Leave forecasting

• Reports

• Security

• Options for overtime, bonuses, deductions and allowances

• Options for superannuation, tax and employment settings

• Integrations

Here are the things to think about in relation to the cost:

• Monthly or annual cost

• Any additional or in-app purchases

• Your own budget

Setting 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 are:

• Your business' legal name and ABN

• Payroll details - work hours, pay rate, payroll start date

• Employee details - personal, employment, tax, superannuation

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 might be:

• 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.

In the section, we'll give you the run down on the following things:

• Employees and independent contractors

• Employment and payment terms

• Ending or interrupting employment

• Adding new hires to payroll

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 and they will affect your payroll.

Think of like your employee works for you whereas a contractor does the work for you.

Contractors don't have to be included in your payroll as they don't receive the same benefits that an employee does in terms of leave.

You can choose to pay them via invoicing.

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 and Payment Agreement

Hiring is just the first step.

The next thing you'll need to decide is how much you'll pay them, their pay rate (hourly, weekly, per annum), their employment type (casual, part-time, full-time), their weekly hours and the frequency of the pay run.

The employment type is particularly important because a casual or part-time employee won't receive the same kind of benefits that a full-time will.

Make sure you're careful to adhere to all minimum wage requirements.

Hiring new employees

There are a few pieces of information you need to gather from new employees when they join your business.

These include:

• Personal details

• Contact information

• Payment/bank details

• Superfund name and number

• Employment information

• Tax File Number

• Any tax exemptions

• Status of residency

Ending an employment agreement

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

Let's be honest.

Tax is confusing for most people.

Tax plays a very large part in your payroll.

In this section, we are going to explain:

• When payroll tax applies

• Report payroll taxes

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.

You'll need to also include any tax exemptions that the employee may have.

Report payroll taxes

With Single Touch Payroll, your payroll taxes will be sent to the ATO every time you run payroll.

This should make it easier at the end of each financial year when it comes to lodging your tax return for employers and employees.

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We hope this has been helpful!

If you're looking for a payroll software that is STP approved, we recommend trying out Payroller.

Happy payrolling!