Payroll for small business – Understand your payroll obligations

As a small business owner, understanding the ins and outs of payroll can seem daunting. There are forms to fill out for new employees, process hours worked, leave entitlements, superannuation, taxes to pay and records to keep.

Below are some payroll obligations a business owner must understand when paying an employee.

Awards and Agreements

An employer and their employees are often bound by a contract or other agreement between them. The terms of the employment (or award) will usually set out what is expected from either party in order to be compliant with all applicable laws, including those that relate to payroll. It covers the appropriate rates and conditions of employment as well as how and when they are paid.

An employer must make sure that their business is complying with all applicable awards or agreements at all times, including those that relate to payroll. More details can be found at fair work.

Payroll Cycle – Do you know the best time to pay employees?

A business can decide whether to pay employees weekly or fortnightly, in some cases monthly. This is also known as the payroll cycle.

The frequency with which you pay wages will depend on the awards or agreements put in place, but it is important to be aware that a misstep can result in hefty fines by regulatory bodies such as Fair Work Australia.

If the awards or agreements have not specified the pay cycle, then employees must be paid at least monthly.

Leave Entitlements and Public Holidays

Employees are entitled to public holidays and other leave entitlements. Apart from the national public holidays like Easter, Christmas and New Year, each state and territory has its own public holidays.

Make sure to plan for your employees’ time off.

Estimated leave pay is a crucial part of your company’s budget. Consider the amount you may have to cover, especially if employees are on long-term leaves such as maternity or parental care periods.

Paying Employees Superannuation

Another business owner’s responsibility is to manage super obligations for employing their staff. Generally, Superannuation Guarantee (SG) contributions apply when an employee earns $450 or more based on ordinary time earnings before tax in a calendar month.

Currently, SG is 10.0% of their ordinary time earnings and is paid monthly or at least every 3 months.

More details can be found at the Australian Taxation Office (ATO) link here.

Businesses pay super contributions to employees’ super funds through a clearing house in a standard called SuperStream.

ATO has a free service that your business could be eligible to use called Small Business Superannuation Clearing House.

Worker’s Compensation Insurance

Workers’ compensation insurance is a mandatory coverage required by law.

Also referred to as WorkCover, it provides employers and employees with income replacement and payments for medical costs if they are unable to work due to illness or injury at work.

The type of insurance cover that is needed will depend on the nature of your business, and its location. Workers compensation insurance is regulated by each state and territory. An employer needs to be registered with their respective regulatory body before they can start taking out a worker’s compensation policy.

How much a small business pay WorkCover insurance premium is largely depended on the size of their payroll, type of industry, and claims rating.

Paying your employees requires a checklist

Before processing the first pay for an employee, their details need to be collected by completing a tax file declaration, submitting super information and determining their entitlements.

Essentially, payroll processing involves these steps. It’s the bookkeeper’s responsibility to get everything right and on time. Using a cloud accounting software such as Xero makes life a lot easier. Initially you’re required to set up the correct details for each payee in the system. Always check the figures as you process the pay run.

This is a summary of how payroll for a small business is calculated.

  1. Gathering timesheets, working out hours worked, and different types of applicable leaves.
  2. Calculating reimbursements and deductions.
  3. Accounting software will calculate the tax and super but it is always a good idea to double check the amounts. Tax varies depending on the individual’s circumstances, details are taken from their tax file declaration form.
  4. Complete the pay run. Accounting software will allocate the different amounts to different entities involved.
  5. Filing payroll to ATO using software’s Single Touch Payroll (STP)

Payroll record keeping requirements

In a nutshell it’s best to keep all records relating to your staff for seven years. Namely, records for payments to your employees, job application, super contributions, reimbursements etc


What is payroll tax? When is it due?

Apart from PAYG withholding tax a business has to deal with they pay payroll tax if their monthly wages exceed the threshold. Note this is a state tax thus it varies from each state. Victorian businesses are expected to lodge and pay on the seventh day of the following month.

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