Payroll 101: a helpful guide for new employees

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 definitely pays to get it right from the get-go. Mistakes can be costly and cause financial stress for you and your staff.

To help make the process a little easier in meeting your responsibilities, download our helpful checklist. By working through each step, you’ll be on your way to a hassle-free payroll system that ticks all the right boxes.

Download Payroll for beginners. A 12-step checklist for setting up your small business payroll. (PDF 77KB)

1. Should you outsource or in-house?

Do you have time to handle payroll yourself? This 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 includes:
 

• The employee’s full name, current address, tax file number.
• The employee’s start date.
• The basis of their employment, e.g. full/part-time or casual.
• Any wage or salary and deductions.
• Bonuses, allowances, benefits.
• Super amount and fund.
• Leave entitlements.
• Bank details, if you’re paying by direct deposit.
   

Note: You should have most of the above as part of a thorough onboarding process (PDF 61KB).

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
   

TIP: 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.

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

To stay on the right side of the ATO, you need to meet your PAYG withholding obligations.
 

Don’t know how much tax to collect? The Tax withheld for individuals calculator can help.

5. Calculate your employee’s super entitlement.

You’ll need to identify which super fund will be used as your default fund for your employees if they don’t have a preferred provider. This is compulsory, so you’ll need to have this ready before they start.
 

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

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

STP means you are now required to report payroll information to the ATO in real-time with every pay run. The good news is the ATO has made concessions for micro-employers (1-4 employees) to help you get onboard.

7. Know the difference between an employee and contractor.

Employees and contractors are treated differently for tax and super purposes, and getting it wrong can incur penalties.
 

Not sure where a worker fits? Use the ATO’s 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 your 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.
• Easy integration with your other software.
• Allows employees access to enter leave, timesheets, etc.
   

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

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.

10. Get across your pay slip responsibilities.

Pay slips must be issued 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 a lot of confidential information on your new staff, so it’s vital to employ best practice privacy standards. Regardless of whether you have your payroll in-house or not.