Payroll processing is the function of managing employee wages payments. It covers everything from setting up an employee into your payroll software through to issuing their wage slips.
If you’re a small business owner, chances are good you’re the one handling payroll. When your team gets bigger and payroll becomes more time-consuming, it is always best to hand this task to a professional as the cost of getting it wrong could result in unexpected costs and harsh penalties.
1. The critical role payroll processing plays in a business
Payroll is one of the most important aspects of business. If it’s not processed correctly, it can affect employee morale. Because employees rely on their wages, errors or untimely payment can create a lack of trust.
Payroll processing is also critical from a compliance perspective. If it’s not processed correctly, it can have a negative impact on your business’s financial stability, additional unexpected costs and your reputation.
2. What does payroll compliance mean?
To comply with government regulations, a business must:
- Make accurate payments and deductions to its employees
- Provide employees with a detailed pay slip that shows the minimum requirements as per Fair Work Australia rules
- File and pay withholding taxes on time to the Tax Office
- For larger businesses: file and pay payroll tax to the relevant state authorities on time
- File and report STP to the Tax Office on time
- Pay other deductions – such as superannuation contributions – to the right places by the due dates
- Keep payroll records for at least seven years
3. What are some of the most common mistakes made when processing payroll, and how can they be avoided?
It’s easy to make mistakes when you’re not a trained bookkeeping professional. Some of the most common mistakes we see include:
Incorrect leave accruals
Usually this happens when a new employee is set up. Only full time and part time employees accrue leave. Be sure to set up part-time employees with pro-rata leave entitlements. Also be sure to tick the option of annual leave being paid out on employee termination so the final pay slip will calculate leave owed.
Incorrect wage payments
Make sure your employees are paid in accordance with the correct award. To be sure they are, refer to Fair Work Australia. Awards usually increase annually but in the last few years they have been increasing more frequently. Make sure to pay the correct overtime, penalty rates and allowances. These can be found in detail within each Award.
Not increasing junior employees wages rates on their birthday
Another common payroll mistake is not increasing junior employees pay rates on their birthdays. To avoid this, be sure to keep a note of all your junior employees’ birthdays otherwise you’ll need to backpay their pays and possibly super.
Incorrect or late superannuation
- Not paying superannuation by the due date (each quarter)
- Not having a default employer super fund OR having an incorrect type
- Incorrect super calculations (superannuation is payable in many more situations than many people realise, for example, for contractors, for people under 18 in certain circumstances, on shift loadings, on leave loading
There are many more payroll processing errors but these are the most common ones.
4. What are some of the consequences of payroll mistakes?
The consequences of incorrect or late payroll processing could negatively impact your business and result in:
- Audits from the Tax Office
- Penalties and interest for underpayment of super
- Penalties and interest for not paying super on time
- Cash flow problems due to not paying employees the correct amounts and having to back pay them to catch up
- Losing money due to overpaying employees that you may not be able to recover from the employees quickly due to their financial position and laws around overpayments
- Fines from Fair Work Inspectors
5. Tips for ensuring your payroll processing is efficient and stress-free
Payroll processing can be a time-consuming and stressful task, but there are some simple tips that can help to make the process more efficient and stress-free for you.
First, it is important to have all of the necessary information and documentation ready before starting the processing. Having this information readily available will save you time and avoid errors.
Second, it is helpful to set up a system for tracking payroll hours worked. Tracking payroll hours will help to ensure that employees are paid accurately and on time. You can do this by using compliant software such as Xero (time sheets function). There are other effective time keeping apps you can use to track multiple employee hours and locations (such as Harvest, Deputy, MyHours plus many more).
Finally, be sure to communicate with your employees about their wages. This will help to ensure that they’re aware of how much they are being paid and when they can expect their paycheck. By following these simple tips, you can help to make payroll processing smooth and stress-free.
6. The benefits of using a professional payroll processing service
The payroll function can be complicated and time consuming. Plus there are a lot of legal requirements, which means there are serious risks to getting things wrong. For these reasons, many business owners prefer to leave it to the experts. It can free up their time and give them extra peace of mind.
In addition, payroll professionals are often able to do your payroll at a lower cost than you may realise, as they use software to automate many of the tasks involved.
Professional service providers may offer different levels of service which you can choose depending on what you need. But they’re generally all capable of:
- Working out pay (including benefits and reimbursements)
- Deducting employee income taxes and, if applicable, payroll
- Making any other deductions, such as retirement contributions
- Filing (and even paying) taxes with the Tax Office
- Making payments to employees
- Keeping payroll records
Professional service providers are worth their weight in gold. When you find the right outsourced payroll service, you’ll spend less time thinking about your payroll and more time doing what you do best – running and growing your business.
7. How we can help
Onelink Bookkeeping Services provides a complete Payroll Service for small business owners in Brisbane. As we work virtually, we can also service business owners from anywhere in Australia. From bookkeeping services through to payroll services using Xero, we’re here to help you take control of your bookkeeping and compliance functions so that you can focus on growing your business.
We love helping small businesses adopt new technologies and offer Free Consultations to walk you through what it would take to switch over to Xero and how this can benefit your business.
To take up this offer, CLICK HERE to book your Xero Discovery Session today.
