Hiring and managing a team is not easy. As a small business owner, you are taking on a resource that can be your biggest asset or biggest liability.
Elements of employment in Australia that need to be managed include:
- Navigation of relevant Award/s
- Single Touch Payroll processing and superannuation
- Employee Onboarding and Employee Offboarding
- Allowances, Leave, employee performance and termination
- Drafting and monitoring of Policy and Procedure
- Contractor management
- Administration of apprentices
- Long Service Leave & Payroll tax
- Fairwork and Workcover case negotiation support
Managing your own payroll in Australia can be challenging for several reasons. Here are some key factors that make it difficult:
1. Complex Taxation System
Pay As You Go (PAYG) Withholding: Employers are required to calculate and withhold taxes from employees’ wages based on tax tables. Most accounting software has up to date tax tables loaded.
2. Superannuation Compliance
Superannuation: Employers must pay a mandatory superannuation contribution (currently 11.5% as of 2024) on top of wages. This needs to be correctly calculated and paid on time, with the correct fund being used.
Superannuation payments are required to be paid at least quarterly, but some employers may opt for monthly payments. Please be aware that superannuation will have to be paid every pay period from 1 July 2026.
3. Award and Enterprise Agreement Compliance
Many employees in Australia are covered by a Modern Award or Enterprise Agreement, which can dictate wage rates, overtime pay, allowances, and other employment conditions. These can vary by industry, role, and location, and failure to comply can result in penalties.
4. Leave Entitlements
Annual Leave, Sick Leave and Public holidays: Employees are entitled to paid annual leave (usually four weeks per year), Sick Leave and Public holiday loadings and you must track the accruals and usage of this leave accurately.
5. Employee Classification and Fair Work Compliance
Misclassifying employees (e.g., full-time vs. casual, permanent vs. contract) can lead to serious legal consequences. Casual employees in Australia, for example, receive a casual loading (typically 25% more), which must be factored into their pay.
Employers must ensure compliance with Fair Work regulations to avoid disputes and potential fines.
6. Changes in Legislation
Australian payroll laws and tax rates can change frequently. Keeping up to date with changes in tax rates, superannuation contributions, leave entitlements, and other compliance requirements can be overwhelming without the right expertise.
The introduction of the Single Touch Payroll (STP) system requires all employers to report payroll information directly to the Australian Taxation Office (ATO) after each pay run. This is a new process that can add complexity.
7. Payroll Software and Systems
While payroll software can simplify calculations, it still requires proper understanding to use effectively. Errors in setting up the system, interpreting the outputs, or even choosing the right software can lead to mistakes.
8. Record-Keeping and Reporting
Employers are required to keep records of all payroll transactions, including wages, hours worked, leave balances, and superannuation payments. These records must be maintained for several years and be accessible for audits.
Inaccurate record-keeping can lead to compliance issues and legal penalties.
9. End-of-Year Payroll Requirements
At the end of the financial year, employers need to generate PAYG summaries (or the new Income Statements in the STP system) for employees, report annual tax information to the ATO, and reconcile payroll records.
Conclusion:
Running payroll without services can save you a few hundred dollars today, but it could cost you in the long run. In order to save money, many small business owners do payroll manually rather than using payroll software or services. But this can lead to tax penalties and/or unhappy employees, which can be costly.
If you are wondering how to do your payroll on your own, the simple answer is that you probably shouldn’t. Outsourcing this process to experts can ensure you don’t make mistakes that can lead to costly issues. It also frees up your time to work on other areas of your business.
One of your most important responsibilities as a small business owner is making sure payroll is on track. In addition to enhancing employee satisfaction, accurate payroll keeps you in compliance. As a small business grows, payroll can quickly become complex, so outsourcing your small business payroll services to experts is a simple way to give your business a competitive edge.
Handling payroll in Australia involves navigating a complex landscape of taxation, employee entitlements, compliance with awards and agreements, and reporting requirements. The need for accuracy, legal compliance, and up-to-date knowledge makes it difficult for many businesses to manage payroll without external support or professional software.
EDGE SME provides payroll and human resources services, click HERE to see details.
