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IN OUR FREE, EDUCATIONAL GUIDE, Bookkeeping Basics, we feature a section that briefly discusses payroll, which we thought was worthy of being expanded upon on here. You might also like to go back and revisit our other blog post that complements the guide, Bookkeeping Basics: Cash vs. Accrual Systems, if you haven’t already.
Paying your employees
Before you employ staff, you need to determine how they will be employed. Are you going to use casual or permanent employees? If you’re employing the latter, will they be employed on a full-time or part-time basis? As the business owner and employer, you must also ensure that you’re paying your staff the correct rate of pay, as well as any entitlements — such as, sick leave, annual leave, overtime, etc — that may be owed to them.
This blog post isn’t going to go into the intricacies of how to work out what you should pay your employees, nor will the Bookkeeping Basics guide, as it generally falls outside the scope of the role of a bookkeeper, however, you can use the Fair Work Ombudsman’s (FWO) Pay Calculator to work out the following:
- Base pay rates
- Overtime and penalty rates
- Pay rates per hour
- Pay rates per shift
- An employee’s employment status (i.e., full time, part time, casual).
If you employ staff under a modern award or agreement (virtually all Australian businesses do), you have a legal requirement to keep accurate and correct time and wage records, in addition to issuing payslips to all of your staff — failure to issue pay slips incurs harsh penalties if it comes to the attention of the Fair Work Ombudsman. You must also keep your each staff member’s time and wage records for, at least, seven years and make sure they’re stored somewhere that’s always accessible, should they ever need to be inspected.
Although you don’t have to keep all employee records, it’s best practice to keep the following records for seven years, even after the employee has left the business, in case they ever file a complaint with the Ombudsman or the Tax Office ever does an audit:
- Employee resume and application details
- Employee workplace performance records
- Employee trade certificates or registration certificates.
For tax purposes, all employee and contractor records must be kept for five years, but most businesses keep them for seven years, in case an enquiry is made by the FWO.
Deducting tax from an employee’s pay
Under the Pay As You Go (PAYG) withholding rules, you are legally obliged to collect tax from employee payments so they can meet their end-of-year tax liabilities. In order to do so, you must first register with the ATO for PAYG withholding, which you can do online, over the phone or through your BAS or tax agent.
You must also provide your employees with a tax file declaration form, which you can also obtain from the ATO, and must be completed by an employee if they want to:
- Claim an entitlement to tax offsets by having a reduced amount withheld from payments made to them
- Advise you of changes to their:
- tax-free threshold
- residency status
- HELP, Trade Support Loan or Financial Supplement debt.
If you have staff that are under 18 years of age
You do not have to withhold amounts from payments to employees under 18 years of age if those amounts are not more than:
- $350 per week
- $700 per fortnight
- $1,517 per month.
Employees with HELP, TSL or Financial Supplement debts
If an employee has indicated they have a HELP, TSL or Financial Supplement debt, you should use the HELP/TSL or Student Financial Supplement Scheme tax table on the ATO website to work out how much extra to withhold for these debts. Add this to the amount withheld shown in the relevant tax table.
Your superannuation obligations
As an employer, you also have an obligation to make super contributions for each of your employees. You must also ensure that you:
- Offer eligible employees a choice of super fund (temporary residents are eligible to choose)
- Pay the minimum amount, called the super guarantee (SG), which is currently 9.5 per cent of ordinary time earnings
- Make your super contributions on the required dates as set by the ATO.
If you don’t pay the super guarantee for your employees, you will have to pay the super guarantee charge, which is not tax deductible.
Which employees are eligible for the SG?
Generally speaking, all employees are eligible if they are paid $450 or more (before tax) in any calendar month. You must pay super for all employees who:
- Are full-time, part-time or casual
- Receive a super pension or annuity while still working — including those who qualify for the transition-to-retirement measure
- Are a temporary resident — when they leave Australia, they can claim the payments you made through a ‘departing Australia superannuation payment’
- Are a company director
- Are a family member working in your business — provided they are eligible for SG
- Are over 70 years of age
- Some contractors, even if they quote an ABN — visit the FWO website for more information.
Final things to consider
Not all bookkeepers offer payroll services, because it can be time consuming and it’s always in flux (new software enters the fray, employees come and go, and each time that occurs, it results in more work). Additionally, the minimum wage is regularly reviewed and increased, which is something that needs to be monitored to ensure your employees continue to be paid correctly. If you decide to hire a bookkeeper to manage your accounting, and you’d also like them to handle your payroll, be sure to clarify how they’ll bill for payroll services and what your obligations are to ensure you’re not paying too much.
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Need help managing your bookkeeping system?
See our bookkeeping directory, National Bookkeeping, for more information on the hundreds of bookkeepers listed who are available to work all around Australia.
Remember, you can download our educational guide, Bookkeeping Basics, for free from the EzyLearn website.
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