Tips on how to set up payroll
As a new employer, the thought of setting up a payroll system may not have you leaping out of bed in the morning, but it pays to get it right from the get-go. Mistakes can be costly and have financial impacts for you and your staff.
To help make meeting your responsibilities a little easier, use our 12-step checklist. By working through each step, you'll be on your way to a payroll system that ticks the right boxes.
Do you have time to handle payroll yourself? If so, managing it in-house may save you money and give you more control.
Alternatively, you can outsource to a reputable bookkeeper, accountant or payroll service provider.
Essential information for each of your employees includes:
Note: You should have captured most of the above as part of a thorough onboarding process.
Make sure you’re meeting the minimum entitlements for employees. You’ll need to understand:
Not sure what should be going into your employees’ pay packets? If they’re covered by a modern award, try using the Fair Work Ombudsman’s Pay and Conditions Tool (PACT) to calculate their pay rate, shift work and leave entitlements. Ongoing, keep an eye out for updates to award rates.
To stay on the right side of the Australian Taxation Office (ATO), you need to meet your PAYG withholding obligations.
Don’t know how much tax to collect? The ATO's Tax withheld for individuals calculator can help.
You'll need to have chosen a superannuation fund to be used as your default fund for employees that don't have a preferred provider. This is compulsory, so you'll need to have the details sorted before they start work with you.
Single Touch Payroll (STP) is an Australian Government initiative to streamline employers' reporting to government agencies.
With STP, you report employees' payroll information to the ATO each time you pay them through STP-enabled software. The information you provide includes salaries and wages, pay as you go (PAYG) withholding, and superannuation liability information. Learn more about STP and how to start reporting on the ATO website.
Employees and contractors are treated differently for tax and superannuation purposes, and getting it wrong can incur penalties.
Not sure where a worker fits? Use the ATO’s employee/contractor decision tool.
If you're managing payroll in-house, you'll need, at minimum, a digital solution that can handle STP compliance. Beyond that, you can tick off the features that work best for you below.
A starting point might be off-the-shelf accounting software with a payroll management capability. Whatever system you choose, make sure it has all the features you want.
Payment cycles can be weekly, fortnightly or monthly. Set reminders or schedule recurring payments by direct deposit to make sure you're never late.
If you use a Westpac business bank account, you can set up payments for each pay run in advance and connect your account to accounting software such as MYOB and Xero.
Pay slips must be made available to each employee:
Under workplace laws you have to keep accurate and complete records for all of your employees for 7 years - even if they leave. Make sure your payroll solution regularly backs up your data.
You'll be holding confidential information on staff members, so it's vital to employ best practice privacy standards. That’s regardless of whether you manage your payroll in-house or not.
Investing time upfront in a robust payroll system is time well spent. The right system should help you meet your compliance obligations, avoid costly errors, simplify processes and keep your employees happy, leaving you free to focus on running and building your business.
This information does not take into account your personal circumstances and is general. It is an overview only and should not be considered a comprehensive statement on any matter or relied upon. Consider obtaining personalised advice from a professional financial adviser and your accountant before making any financial decisions in relation to the matters discussed in this article, including when considering tax and finance options for your business. Westpac does not endorse any of the external providers referred to in this article.