Tips on how to set up payroll

Setting up your first payroll may seem like a daunting task, but it has to be done correctly and compliantly. Our 12-step checklist (PDF 77KB) should help you get off to a good start.

 

Set up payroll in 12 steps

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.

1. Think about outsourcing payroll versus managing it in-house

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.

2. Gather the employee records you need

Essential information for each of your employees includes:
 

• Employee's full name, current address, tax file number (TFN)
• Employee's start date
• The basis of their employment, e.g. full time/part time or casual.
• Wage or salary and deductions
• Bonuses, allowances, benefits
• Superannuation amount and fund
• Leave entitlements
• Bank details, if you’re paying by direct deposit.
   

Note: You should have captured most of the above as part of a thorough onboarding process.

3. Check you’re paying the correct wages/entitlements

Make sure you’re meeting the minimum entitlements for employees. You’ll need to understand:
 

• The national minimum wage
• The National Employment Standards (NES)
• Awards
   

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.

4. Work out what tax you need to deduct from your employee’s pay

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.

5. Calculate each employee's super entitlement

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.
 

Superannuation obligations include paying the super guarantee. The ATO has a super guarantee contributions tool that can help you work out the correct entitlement.

6. Understand your obligations under Single Touch Payroll (STP)

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.

7. Know the difference between an employee and contractor

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.

8. Pick a payroll solution that works for you

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.
 

• Accessible on the go
• Can be adapted as your business grows
• Handle recurring and ad-hoc payments
• Reimburses expenses
• Approves and tracks employee leave
• Handles timesheets
• Backs up your data securely
• Is STP compliant.
• Has an easily available support team.
• Easily integrates with your other software
• Allows employees access to enter leave, timesheets, etc.
   

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.

9. Decide how often you’ll pay your employee/s

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.

10. Get across your pay slip responsibilities

Pay slips must be made available to each employee:
 

• In electronic form or hard copy.
• Within one working day of pay day.
• With specific details included.

11. Keep up-to-date records

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.

12. Ensure you’re meeting privacy standards

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.