The most basic requirement for any employer is to pay their staff the right amount at the right time. Failure to do so will not only create a great deal of internal dissatisfaction, it may also lead to a government audit.
We look at how to avoid the common payroll mistakes. We urge all our clients with staff members to pay careful attention to their payroll function and invite you to contact us if you need help setting up or auditing your system.
Know Who’s an Employee
One of the biggest payroll mistakes is confusing a contractor and an employee. Contractors do not belong on your payroll and your business is not obliged to meet their standard awards and entitlements. However, if your contractor spends most of their time working for your business, you may discover that the ATO considers them an employee.
Check out this video from the ATO which explains the difference between an employee and a contractor and/or have a look at the ATO website.
Know the Law
It is critical that you stay up to date with employment law. You need to understand tax rates and employee entitlements including award rates of pay, marginal rates of tax and tax brackets, annual leave and sick leave accruals, fringe benefits and allowances. Get these wrong and you’ll be facing costly recalculations and embarrassing explanations with your employees.
The ATO has an excellent summary of employment tax law for small businesses on their website.
Fair Work Australia has all the respective award rates and minimum employment conditions.
Sweat the Small Stuff
The devil is in the detail with payroll processing and it is critical that you maintain detailed records and consider all aspects of the employment agreement.
Here are a few things to make sure you don’t forget:
- Statutory maternity or paternity payments: make sure you track leave start and end dates.
- Superannuation: ensure that your default employer superannuation fund meets all the minimum insurance and benefit requirements.
- Public holiday and holiday accruals: ensure you factor in holidays and calculate what’s owed at the end of employment for holidays accrued.
- New joiners and leavers: make sure they are included in the system, that TFN Declarations are submitted and the correct start and end dates are recorded.
- Employee expenses: sometimes these need to be shown as taxable allowances on an employee’s PAYG payment statement.
Get Good Payroll Software
All this detail is the number one reason to invest in a payroll system. Good payroll systems (including Xero, MYOB and QuickBooks) all automate most of the process so you don’t have to remember every single detail.
Invest in Training
Like all software, Payroll systems operate “garbage-in garbage-out”. As well as investing in a good software system, it is critical to provide ongoing training for whoever is managing your payroll.
Have Backup Systems in Place
The Payroll function is too critical to rely on a single bank account, computer or employee. You must have effective back up to ensure your staff is paid on time.
Consider the following:
- Look at a cloud-based Payroll software, which ensures that your information is encrypted and stored online rather than on your hard drive.
- Ensure that more than one person knows how to operate the payroll system.
- Open a second bank account just in case the account you use for payroll is unavailable for some reason.
The Last Word: SECURITY
This probably goes without saying! Make sure that your employees’ personal information is stored securely. Guard against internal leaks and external hacking.