small business payroll

Everything to know about small business payroll

Small business payroll may seem simple at first, but as your payroll needs grow, the process becomes more complex. Although you may view this complexity as a headache, it’s actually a great sign—your business is growing. 

You’ll need more staff and with that, means more payroll tasks and responsibilities. Many small businesses and SMEs outsource payroll services to save time and money. But, understanding how small business payroll works and what you need to do, can help you get started. When it’s time to outsource, you’ll also know what to look for in a payroll provider.

Getting started with payroll

If your business has hired employees before, you’re probably familiar with payroll. However, payroll also involves a lot of moving parts and compliance standards. 

As mentioned above, payroll can become complicated for growing businesses. After all, you have to consider income tax, superannuation, award rates, salary sacrificing, and more to get it all right.

Here are a few core responsibilities and considerations you have when managing payroll. 

  • Hiring staff as an employee or a contractor – you’ll need to run payroll for employees where contractors invoice for their time. 
  • Records you need to keep – you’ll need to record personal information, track awards rates, hours worked and more. 
  • Payroll withholdings – are you meeting superannuation guarantees, income tax, HECs repayments and other payroll requirements?
  • Type of payroll software to use – Using the right software helps you automate time tracking, meet compliance standards and integrate with your existing accounting software.
  • Payroll services – outsourcing payroll to a trusted third party can save you time and money while making sure you meet compliance requirements.

In addition to these basic requirements, you’ll also need to be aware of payroll compliance.

Requirements for payroll compliance

To operate a business in Australia, you need to maintain compliance with payroll regulations. For example, there are several National Employment Standards (NES).

They include:

  • Flexible working arrangements – Employees may request flexible working arrangements after working with the same employer for at least one year. 
  • Maximum hours – Full-time employees have 38 working hours plus reasonable additional hours. 
  • Parental leave – Employees with a newborn or adopted child have up to 12 months of unpaid leave. If the employee chooses, they can request an additional 12 months of leave. 
  • Annual leave – All employees must receive at least four weeks of annual leave, and for some shift workers, it’s five weeks. This requirement doesn’t apply to casual workers. 
  • Personal or carer’s leave and compassionate leave – This gives employees 10 days of paid leave, two days of unpaid carer’s leave, and two days of compassionate leave. However, casual workers are unpaid. 
  • Public holidays – Employees get paid days off on recognised public holidays.

Along with NES, small businesses must also keep employee payroll records and payslips. To be compliant, you must keep records for up to seven years. You also need to send and maintain payslips to show you’ve paid the right wages and entitlements.

Payroll withholding and taxes

Employers must withhold income taxes from their employees’ paychecks. The rate at which you’ll need to withhold income taxes largely depends on the amount of money each employee earns. Find more details on income tax rates in Australia below. 

Moreover, Australia charges employers who pay $6.5 million or less in taxable wages a 4.75% payroll tax. Companies that pay more than $6.5 million pay a 4.95% payroll tax. 

Income taxes

Australia’s national income tax rates range from 0% to 45%, depending on the amount of income the employee generates. Here’s a breakdown of the typical tax rates:

Annual Income Taxes
Up to $18,200 0%
$18,201 – $45,000 19%
$45,001 – $120,000 32.5%
$120,001 – $180,000 37%
$180,001 and over 45%

How to pay payroll taxes

To make payroll tax payments to the ATO, you’ll need to register your PAYG. Once you do, you’ll be able to make your payroll tax payments online. Keep in mind that you’ll need to regularly make your payments and report the payroll taxes you’ve withheld from your employees. 

Other tax considerations

There are other considerations to think about when handling your small business payroll. After all, income tax isn’t the only part you’ll withhold. 

You’ll also need to withhold superannuation—a required portion that goes toward retirement. It’s at least 10.5% of each employee’s gross income, but it’s much more complex than that. Most of the mistakes that businesses make when doing their own payroll are related to superannuation, so it can be worth seeking an expert.

Tips for setting up and managing payroll

Your business is growing and you’re ready to make your first hire. Before you do, you’ll need to set up your payroll. Here’s what you’ll need to get started:

  • ABN – As an employer, you’ll need to get your Australian business number or ABN. If you already have one, you’re one step ahead. 
  • PAYG – Next, register for pay-as-you-go withholding, also known as PAYG. 
  • Gather employee information – You’ll need your employee’s Tax File Number (TFN) as well as their superannuation and bank details.

1. Register your ABN and PAYG withholding

Before you hire your first employee, you’ll register your ABN with PAYG withholding. This is where you’ll pay the money you withheld to the Australian Tax Office (ATO). 

2. Collect employee information 

Next, be sure to collect your employee’s information and check that information for accuracy. You’ll need:

  • Identification – You need to verify your employee’s identification. Be sure to make a copy of their identification card for your records. 
  • TFN – You’ll also need your employee’s Tax File Number (TFN). 
  • Superannuation and bank details – Finally, you’ll need to get your employee’s Superannuation details as well as their bank details. 
  • Withholding declaration – This authorises you to adjust the amount of tax withheld from final payments.
  • Medicare Levy declaration – This will impact payroll as an additional tax on employee income that you may need to pay

3. Use single-touch payroll

The ATO incorporated single-touch payroll (STP) in 2018 to find businesses that aren’t paying their employees correctly and improve tax reporting efficiency. 

To use single-touch payroll, your accounting or payroll software will need to integrate with a Transport Provider. From there, the Transport Provider securely sends the required data to the ATO in the STP format. 

4. Choose the right payroll software 

There are several different types of payroll software available. The software you choose will determine if payroll is a simple process or a constant source of headaches. When you choose your software, consider regulatory compliance, the tools the software has to make your life easier, STP capabilities, and other integrations. 

Visory integrates with a range of major industry software for payroll services. However, it’s important to note that software is only one part of doing payroll. Sure, it can make the job easier, but it doesn’t automate the payroll process. A payroll expert should still review your records to make sure it’s accurate. 

5. Leverage payroll services 

When it comes to managing payroll on time and accurately, it’s wise to work with an outsourced payroll service provider. A payroll provider will make sure your payroll process is compliant and accurate. They’ll free up time for you to focus on more important areas of your business and reduce the risk of future issues.

Your business is growing, and with that comes a need for a better payroll process. Bookkeepers also often provide payroll services, and with the right provider, you can get bookkeeping and payroll all in one. If you’re ready to get help managing your payroll, find out how Visory can help.