21 March 2024
Payroll processing is a vital function for any business, playing a crucial role in connecting employers, employees and the Australian Taxation Office (ATO). Accurate and timely payroll management is essential in meeting your various obligations.
Importantly, precise payroll data is essential to generating reliable financial reports for your business which aids strategic decision-making and long-term planning. The importance of payroll processing extends beyond a mandatory administrative task, it also contributes significantly to the financial integrity and stability of your business that builds the foundation for your success.
To make sure you get your payroll processing right, it’s important you follow these seven essential steps.
The first step to processing payroll is understanding how much exactly you should be paying your employees. This can be a tricky process in Australia’s complex system which encompasses a multitude of awards, agreements, and legislative provisions. Each has its own set of rules and conditions, resulting in Australia’s system being one of the most challenging in the world.
To fully understand your obligations as they relate to your business, it’s best to contact the Fair Work Ombudsman or consult with a specialist employment relations provider. As an accounting firm Retinue doesn’t provide advice on employee entitlements, Modern Awards or other industrial relations matters, so we recommend you speak to a specialist in this field to get the most accurate information.
Correct taxation is a fundamental part of a successful payroll processing and the ATO requires certain information and documentation. This includes a Tax File Number Declaration and a Superannuation Standard Choice Form submitted by your employees. As an employer it is your responsibility to ensure you are correctly withholding and remitting income tax, superannuation, and other mandatory deductions stipulated by the ATO.
Employers must also inform employees of your nominated employer fund, commonly known as the “default fund”. If employees have not specified their choice or until they do so, remit their Super Guarantee contributions to your default fund.
Single Touch Payroll (STP) is an Australian government initiative aimed at streamlining the reporting of payroll information to the ATO. It requires employers to report payroll information electronically to the ATO at the same time employees are paid. This electronic reporting is done directly from the employer’s payroll or accounting software, and it includes details such as salaries and wages, allowances, pay as you go (PAYG) withholding, and superannuation contributions. Accounting software such as Xero offer STP integrations that streamline this process.
In Australia, the standard pay cycles vary, but the most common ones are weekly, fortnightly, and monthly. These pay cycles determine how often employees receive their wages or salaries. The choice of pay cycle often depends on the employer’s policies and operating requirements.
Weekly: Employees are paid every week, usually on the same day each week. This frequent pay cycle provides a more regular income stream for employees.
Fortnightly: Many employers in Australia use a fortnightly pay cycle, where employees receive their wages every two weeks. This is a common and widely accepted practice in various industries.
Monthly: Some organisations opt for a monthly pay cycle, where employees receive their salary once a month. This is more common for salaried employees, particularly in professional and managerial positions.
An Activity Statement is a form used by the ATO to gather information about the financial activities of a business. It is typically required to be lodged on a regular basis, usually either monthly (Instalment Activity Statement – IAS) or quarterly (Business Activity Statement – BAS). Activity Statements serve a key function in payroll reporting; they report your Pay as You Go (PAYG) withholding tax obligations, which are the amounts of tax withheld from employees’ wages and salaries.
Employers are required to contribute a percentage of their employees’ ordinary earnings to a superannuation fund. This is known as the Superannuation Guarantee (SG), and the current rate is 11%. In Australia, employees generally have the ability to choose their own superannuation fund to which their employer’s contributions are made. This is known as the ‘choice of fund’ option. In cases where an employee has not nominated a preferred super fund, Super Guarantee contributions must be made to your default fund.
SuperStream is the mandated method through which businesses are required to submit superannuation guarantee contributions for their employees to super funds. Utilising SuperStream involves the electronic transmission of both funds and data in a standardised format. This is done via accounting software, such as Xero, or through the ATO’s Small Business Superannuation Clearing House.
It’s also important to understand the different superannuation eligibility rules as defined by the ATO. Generally, all employees are eligible for super guarantee. It doesn’t matter if the employee is:
There are additional eligibility rules for:
Completing your End of Financial Year STP data involves submitting a “Finalisation Declaration”, an essential step in the payroll process. This declaration, submitted in the approved format by July 14 annually, signifies the completion of comprehensive reporting for each employee throughout the financial year. To execute the finalisation declaration, include a finalisation indicator for employees, directors, contractors, and others in your STP reporting. Once the finalisation indicator is applied to an employee, the ATO will automatically populate their tax return and present the data as ‘tax ready’ in ATO Online Services, streamlining the tax preparation process for both employers and employees.
This finalisation process removes the need to prepare PAYG Payment Summaries for your employees and once finalised they can start preparing their tax returns.
Need a hand with your payroll processing? Retinue is here to help. Call us on 1800 861 566 to get started.
Retinue’s payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
*Retinue’s (ABN 66 658 618 449) payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
Protection is only provided for ATO investigations notified to us during the period which you are a client and relating to any tax returns or lodgements prepared by us. Fines includes any penalties and interest that may result from any errors made by us but does not include any additional tax liability that may result from an amended lodgement.
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