Payroll Systems Australia: The Ultimate Guide

Introduction to payroll systems and methods

Though seemingly simple and straightforward, payroll is actually quite complex and requires a number of intricate moving parts for successful processing.

There are three traditional ways businesses can complete their payroll:

• Manually
• Using payroll software
• With the assistance of a professional or external bureau

Let’s take a closer look at each payroll method and their respective pros and cons for businesses looking into payroll systems in Australia.

Manual payroll systems

A manual payroll system requires the entire payroll process to be done by hand. Should you decide to do payroll yourself, you can purchase standard time sheets for documentation and ask your employees to complete them. With the completed timesheets, you can then perform the appropriate wage and tax calculations, and finally hand write the pay cheques, pay in cash or electronically transfer funds to your employees.

It is worth noting that manual payroll processing requires a number of involved steps that may be more time consuming than you might think. This is especially true of businesses that teeter between small and medium-sized. The more employees you have, the trickier and more time consuming it is to manually run payroll.

Pros and cons of manual payroll

Payroll software

Bringing the digital element to the world of business operations, payroll software effectively levelled the playing field. These computer programs are designed to handle numerical inputs and outputs and calculate the correct owed compensation for each employee. Adding an element of automation, payroll software programs make tracking, maintaining, and delivering employee compensation simple and efficient.

Although payroll software can be considerably more expensive than manually running payroll, it’s far more dependable, secure and accurate. Without any dependence on honour systems or manual calculations, you can rest assured knowing specialised payroll software gets it right, every time.

Depending on the complexity of the payroll software, you may have to pay for training to get yourself and your staff familiar with the system. In addition, if your workforce is larger, you may need to hire payroll staff to ensure there is a dedicated effort placed on proper payroll processing. This, of course, can prove more expensive in the long run as hiring a specialised payroll person may require you to pay additional salaries and benefits.

QuickBooks Payroll powered by Employment Hero services are among the most popular payroll software programs small business owners and first-time payroll users choose. Offering worry-free payroll processing, time-saving automation, and many other advantages, QuickBooks payroll provides the support you need, all year-round.

Pros and cons of payroll software

Outsourced payroll processing 

Outsourcing your company’s payroll to a professional is a cost-effective and time-saving option. Doing so takes the burden off your shoulders and puts your payroll into trusted, experienced hands. Payroll service professionals can do everything from collecting employee information and setting up direct deposit to handling payslips and filing tax payments. With a professional, you can expect to pay a fixed rate for the service, which eliminates the need to hire a full-time worker. 

Allowing a professional to take care of your business’s payroll can provide huge benefits to your company. It can also help support a more streamlined system of business operations.

The downside to outsourcing is that when employees have payroll concerns, immediate help might not be available and up to date leave records are only as up to date as the last report you were provided. However, outsourcing payroll functions will inevitably free up more of your time and allow you to keep a better handle on other facets of running your business.

Pros and cons of outsourced payroll processing

How to do payroll manually

Calculating withholding taxes, employee net pay, and payroll taxes is no easy task, but it’s required of every business owner with a workforce. If you plan to save on costs and put your brain to work, use the following steps to learn how to do payroll manually.

Step 1: Gather your tax information

If this is your first time running payroll, you’ll need to be registered for PAYG withholding with the ATO. You should apply for PAYG withholding registration prior to your first pay run. The frequency on which you need to report your withholdings is determined by whether you are classed as a Small, Medium or Large withholder. You can apply online through the Online Services for business, through your registered tax or BAS agent, using your SBR compatible software or by calling the ATO business line directly.

Step 2: Have your employees fill out a TFN declaration (Tax File Number Declaration)

Employees need to complete this form so that employers can calculate the amount of tax to be withheld from payments to the employee. This form needs to be given to new employees on commencement and lodged with the ATO within 14 days after the form is either signed by the employee or completed by you. Electronic copies of the forms can be downloaded from the ATO website and filled in on-screen or completed by hand before returning to the employer.

Step 3: Determine a payroll calendar

There are three different calendars you can choose from: weekly, fortnightly, and monthly. Each comes with different advantages and disadvantages, costs, and payroll dates.

Step 4: Calculate gross pay and withhold income taxes

Gross pay is the number of hours an employee has worked within a given pay period multiplied by their hourly rate. If they are on a salary it will be the annual salary divided by the number of pay periods per annum to arrive at a figure for that period. These payroll calculations are most easily tracked in spreadsheets.

To determine payroll withholdings, you’ll need to go through each employee’s gross wage and using the relevant weekly, fortnightly or monthly tax table, calculate the PAYG to be withheld from the gross amount. In addition to withholdings and deductions, you will need to factor in other aspects of payroll processing per paycheque. This means you may need to consider the following:

• Allowances (not subject to PAYG withholding)
• Superannuation contributions
• Salary Sacrifice amounts
• Child Support Agency deductions
• PAYG withholding rates for employees with HELP, VSL, FS, SSS or TSL debts

Step 5: Pay payroll taxes

Part of processing your own payroll is calculating the tax that has to be withheld from employee pay. 

There are a wide range of options that need to be taken into consideration based on the information provided in the TFN declaration, along with taxation requirements on allowances and lump sum payments. These considerations are taken into account when using the relevant tax tables to determine the amount to be withheld.

Step 6: File and report your payroll

After distributing your employees’ payslips, you’ll be tasked with filing and reporting payroll to the Australian Taxation Office (ATO) and if applicable, local State Revenue Offices. To meet federal and state requirements, you’ll need to do the following:

• STP Reporting (Single Touch Payroll): At the completion of each pay run you will need to report the payrun figures to the ATO – this includes (but is not limited to) Gross Wages, PAYG withheld and Superannuation.
• PAYG Withholding: All employee PAYG withholdings are reported and paid to the ATO based on reporting frequency determined when you first registered as a PAYG withholder.
• File State Payroll tax reports: If your Gross Wages exceed the State threshold you will need to calculate the payroll tax payable and remit to the relevant Office of State revenue by day 7 of the following month. If you employ people in more than one state you may need to report payroll tax in several jurisdictions.
• File and pay Superannuation: You will need to lodge and pay superannuation contributions electronically, at a minimum, quarterly by day 28 of the month following the end of the quarter. You may need to lodge more frequently if required under an Award under which employees are paid.

Step 7: Keep well-maintained payroll records

A key piece of the payroll puzzle is keeping organised and accurate records. You’ll need to be able to reference past records, and that is only possible if you make an effort to keep all documents carefully catalogued. Payroll records must be retained for a period of 7 years.

Keep in mind that you will need to report new hires to the ATO via the TFN form. This process effectively verifies that each new employee is eligible to work in Australia, the basis on which they are employed, any higher education debt obligations and their entitlement to the tax-free threshold. You will need to gather the employee’s name and Tax File Number.

How to choose the best payroll system for your small business

No two payroll systems are the same, so it’s important you do your research before choosing a system. Here are a few things to look for:

• Cloud software: ensure that you can make a pay run seamlessly anywhere, anytime.
• Features: do your research on the features you need to best support your business; for example, automatic award rate calculations, or self-service apps for employees to manage leave etc.
• Affordability: You want a service that is value for money when comparing against the features you need; costs will vary pending the features available. It’s also worth considering whether you want to pay monthly or be locked into annual contracts. 
• Compatibility: You want a payroll service that works with the programs you already use, like time and attendance and accounting systems.
• Customer service and support: Ensure the system you choose gives you access to great support when required.
• Law compliance: Make sure your payroll service is compliant with local tax laws, including Single Touch Payroll.
• Employee award rates: Ensure it is compatible with award rates - particularly important when managing casuals or contractors. 
• Flexibility: If your business grows, will your payroll system scale with you?

Conclusion

Staying on top of your payroll is one of the greatest favours you can do for yourself and your business. Whether you choose to do it manually, with smart payroll software like QuickBooks Payroll, or with an outsourced professional, tackle your payroll with confidence. For more helpful information like this, visit QuickBooks Australia YouTube channel.

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