Most individuals have received a wage, but as a business owner, understanding payroll becomes essential. How does payroll work for a small business? It’s a meticulous process demanding time and attention because a minor error can escalate into a significant issue. Payroll intricacies require thoroughness, considering factors like minimum wage, overtime, annual and sick leave, payroll tax, superannuation, etc.
Managing payroll is a vital element of business operations and frequently represents a substantial expense. Having the right team will make the difference. Precise and punctual payroll handling is crucial, guaranteeing accurate and timely employee payments and fulfilling legal tax obligations.
To provide further insights and guidance, we’ve compiled this list of 12 effective payroll tips for small businesses:
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Record-keeping
Incorporate payroll paperwork into your onboarding checklist for new employees to ensure meticulous record-keeping. Document any information that may impact an employee’s pay, such as regular time sheets, leave taken, overtime worked, tax offsets, and superannuation sacrificed contributions during the payroll preparation process.
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Establish a budget for payroll
Payroll expenses often surpass initial expectations, representing a significant cost for businesses. Striking a balance between payroll costs and overall business expenses is crucial to guarantee sufficient funds for wages and superannuation. Consider budgeting by determining payroll costs as a percentage of revenue to avert unfavourable financial consequences.
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Implement a payroll policy
A payroll policy is a dependable guide for payroll officers and business owners, providing clear instructions for precise and efficient payroll tasks. A well-crafted payroll policy guarantees that all employees comprehend the established payroll system. For instance:
- A breakdown of the payroll process
- Specifications for employee classification
- Factors influencing salaries and wages determination
- Reporting responsibilities for employees
- Procedures for addressing payroll errors
- Criteria for accrual of annual leave and sick leave
- Sueprannuation payments including SGC and Salary Sacrificing payments
- Guidelines for salary and promotion calculations.
Lack of a payroll policy can lead to disorderly and ineffective processes, potentially resulting in costly payroll errors.
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Stay abreast of deadlines for PAYG and superannuation payments
For many businesses, the responsibility extends to making both annual and quarterly payments. Yet, this task involves more than just marking dates on the calendar; it requires effective budgeting to ensure the availability of funds for the required payments. Identify when PAYG and Superannuation payments are due and align your budget accordingly.
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Classify employees
Small businesses need to differentiate between employees and independent contractors. An employee serves in your business, and performs their work as a representative of your business, whereas an independent contractor provides services to your business and performs work to further their own business. Employees necessitate tax payments through the PAYG system, additional superannuation payments, and compliance with minimum wage laws. It’s extremely important for business owners to identify the Award they fall under, and ensure they meet all employee entitlements. Many business owners are under the false impression that what is stipulated under an employment contract is legal and must hold up in the court of law if the employee has agreed to the terms. However, if a salaried employee’s entitlements within the contract are below what is stipulated in the Award, the employee contract is nulled, therefore it’s essential for business owners to understand and adhere to industry regulations. Employees depending on whether they are permanent or casual may also be entitled to sick leave and annual leave. On the other hand, Independent contractors manage these responsibilities autonomously.
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Implement a standardised pay schedule
Establishing a consistent pay schedule for all employees enhances the efficiency and accuracy of payroll management, minimising errors. It is also important to decide on the payment frequency, whether weekly, fortnightly, or, monthly. A uniform schedule for all employees assists in cash flow management which is crucial dependent on the type of business and frequency of revenue payments.
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Payroll management software
Opting for a paperless payroll system can save time, cost, and resources. Explore different payroll software options, with cloud-based solutions often favoured for their cost-effectiveness, accessibility, and user-friendly features. However, the key is choosing the one that best aligns with your company’s specific needs. Our preferred partner here at Tax On Tax Off is Xero.
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Incorporate a time-tracking tool
An automated time-tracking tool effectively monitors employee productivity, offering real-time attendance data and seamlessly integrating with your payroll software. This integration saves you valuable time in the payroll process.
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Allocate sufficient time for payroll processing
Establish a consistent monthly or weekly payroll cut-off to avoid hurried processing, reducing the risk of miscalculations and preventing employee dissatisfaction. Adhere to promised payment dates to manage expectations and minimise inquiries about delayed salaries. Integrations with third-party software such as Deputy and Planday can assist business in these areas.
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Explore payroll outsourcing services
If you find yourself without sufficient time or a dedicated team for payroll management, outsourcing is a strategic and cost-effective option, especially for small businesses. Payroll tasks can be intricate and prone to errors, leading to potential legal implications and team dissatisfaction if incorrectly handled.
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Prioritise people-centred approaches
Employees’ connection to payroll is personal, and errors can diminish morale. Prioritise relationships in payroll by ensuring accurate and timely payments, promoting well-being, motivation, and productivity. Seek employee feedback through open communication to gauge and improve the effectiveness of the current payroll system.
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Simplify payroll systems and integrations
To minimise maintenance costs and training inefficiencies, steer clear of adding new and overcomplicated tools for each business function. Simplify operations and save resources by utilising a centralised business portal, offering managers expertise, easy reporting, and reducing unnecessary administration. This streamlined approach delivers significant value.
Payroll management for small businesses is a high-stakes operation. Even minor oversights can lead to significant lawsuits and labour violations.
In conclusion, adhering to these payroll best practice guidelines proves advantageous for future business growth. Alternatively, consider utilising the services of payroll outsourcing providers to effectively handle tasks such as pay runs, PAYG registrations and reporting superannuation payments, employee onboarding, and more, ensuring real-time reporting. Recognising that not all small business owners are payroll experts, this approach can simplify payroll management’s often confusing and cumbersome aspects.
If you’re searching for a dependable payroll solution, our proficient team at Tax On Tax Off is knowledgeable and continually up-to-date with changes in payroll tax laws, ensuring your business meets compliance requirements. Contact us for a no-obligation free consultation.