Payroll Process Fundamentals You Must Keep in Mind

• Reading Time: 3 Minutes
• Published: November 20, 2020
• Last Updated: February 7, 2025

The scope of payroll is not limited to paying your employees and having records of the same. There is more to payroll than meets the eye. There are mistakes that can lead to penalties or bigger legal issues. A simple example of this will be – not registering in every state or territory you pay remuneration and registering in just your state where the business is based. This article will make the payroll process easier for you if you are planning to conduct the same on your own. However, even so, we do suggest that you outsource the payroll task to an expert as in long run the process will become increasingly complex and tedious which will take away your focus from your core business activity.

Here some fundamental steps that one must always keep in mind in order to conduct an efficient payroll process without a fail –

Registration:

You must register yourself for payroll tax when the wages paid exceeds the monthly threshold amount for the jurisdiction of the places you are operating your business. You also need to keep up to date about the threshold limit as it keeps changing. Another thing to note is that the thresholds, deduction entitlement, and tax rates vary between states and territories.

Classification:

You must understand which category you have to classify your workforce. Contractors or independent consultants are not your employees. Also, classify between a part-time or full-time employee and the ones working flexible or fixed hours. In the case of a new employee, record all personal details like date of birth, address, and marital status and enroll them into your pension or superannuation scheme.

Payment:

You must pay your employees the right amount at the right time consistently. In Australia, the most common payroll schedules are – weekly, fortnightly, and monthly. You must account for overtime, travel claims, entertainment, and similar business expenses. Accurate working hours must be input for every employee. You must make sure that the accurate salary information and tax codes are recorded. You will have to make all this information available to your employees with the help of a detailed payslip.

Deduction Entitlement:

A part of payroll goes into deductions entitlement like superannuation, contributions to employee retirement schemes, fringe tax, child support, employee income tax, and taxes on benefits. The deduction value is subtracted from the employee’s earnings. Please note, employee’s age, seniority, and salary will affect the value of contributions to employee retirement schemes.

Late payment of payroll taxes:

One of the crucial deductions in payroll is that of the payroll tax. You will have to collect taxes from your employees for the ATO. The taxes are then required to hand over as per the schedule. STP (Single Touch Payroll) has also made the payroll process a breeze as the earlier mention report is reported to ATO every you pay them through STP-enabled software.

Records:

Payroll records are important for organizations, but also it is mandatory to hold onto payroll records for at least seven years.

As a business operating in Australia, you can conduct your payroll process by using pen & paper or spreadsheets, with the help of inhouse payroll personnel or accountant and another option is to choose a payroll service provider.

Understand that the ATO needs your payroll data in a compliant digital report format that means it might not accept the pen & paper or spreadsheets data. Hiring an in-house payroll employee has a long-term implication, and getting it done with the help of an accountant is okay, but you also don’t want to burden them with extra responsibility.

There is an option of using DIY apps that can calculate pay and deductions and even fill out tax forms; the only downside is that you still need to make the payments yourself. You can outsource all payroll tasks or a part of the payroll task to a payroll outsourcing service provider.

The selection of a method of conducting the payroll process is up to you, and you should decide what will best fit your payroll needs, but whichever method you choose make sure not to miss out on any step we explained earlier.

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