With the government planning to run a pilot to test ways of streamlining business reporting of tax and superannuation, now is a great time for business owners to take a fresh look at their payroll procedures.
Here are some tips for choosing the best payroll system for your business.
When is the right time to automate your payroll?
In the early days of a business, paying your employees manually is possible. But there could come a time where not having a system could and hamper your business’ expansion.
Luke Collard, a director at Melbourne staffing and recruitment company Rec2Rec, says the trigger point for many businesses is an increase in headcount.
“I would say that any business that has fewer than 10 employees could probably manage it themselves, but when you start going beyond that you probably need software dedicated to managing payroll,” he says.
A payroll system should be able to do the following things:
- Maintain up-to-date employee records.
- Record leave entitlements.
- Keep a record employee pay including rates and any incentive-based payments.
- Record payment of superannuation entitlements.
- Record details of employee termination.
- Manage taxation responsibilities and file tax forms.
- Automate pay slip notifications and leave calculations.
How to choose the right system
Once you have decided to automate your payroll system, there are a number of considerations to ensure that you have made the right choice.
Collard says that different payroll systems will suit different types of businesses.
“It depends if you are looking at internal employees and managing your internal payroll or whether you are looking at paying contractors,” he says.
“You could have the scenario where you are a recruitment agency and you may only employ half a dozen people, but you are responsible for 200 people’s payroll.”
But regardless of your specific business, there are some things to consider before diving in.
Collard suggests working out if you want to outsource your payroll responsibilities or perform it in-house.
“If you get past the point of around 30 to 40 employees you probably need to look at some sort of outsourcing or getting an external provider into assess rather than use a software program alone,” he says.
Making a joint decision and getting buy-in from your payroll officer is worth considering.
One way to do this is to interview two or three providers and include your payroll officer in these discussions.
It’s also important that the vendor you choose stays up to date with relevant tax laws and has an effective error management system.
Collard says a cloud-based system is ideal for this.
“Apart from the efficiencies, there would certainly be questions around legislation and quality and control that would be better managed by an online system,” he says.
Don’t forget to check things like set-up and ongoing costs of the system, and that it’s compatible with any other processes that are already being used.
Collard remembers earlier days when timesheets were faxed in and bad hand writing could mean someone didn’t get paid. But despite the functionality of the cloud, privacy and security issues should remain very much front of mind.
The advantage of being on the cloud is that everything can happen automatically – timesheets would be online, signed off online, and fed straight into the payroll system,” he says.
It is worth investigating the security of the system. Ask your prospective vendor questions about who else can access the data and how it is sorted.
Finally, Collard suggests choosing a payroll system that can grow with your business and adapt to your changing needs. For example, if your business grows to the point where you need to bring in a number of contract positions, your system must be able to adapt to that.
“You want a payroll system that allows you to deal with a large number of temps who are all on different pay rates and different award rates,” he says.
Payroll responsibilities and government changes
The Australian Taxation Office (ATO) requires all employers keep employer records for five years. The records can be kept as either an electronic or hardcopy form.
Employers also need to withhold payments made to your employees via the Pay as You Go (PAYG) withholding system with payments to be made to the ATO monthly or quarterly when you lodge your Business Activity Statement (BAS).
At the end of the year you must provide payment summaries to all your employees and send a payment summary annual payments to employees to the ATO in order to meet your PAYG withholding reporting obligations.
The government is looking at streamlining the reporting process via the implementation of Single Touch Payroll (STP).
This new system will mean that you will now be able to report your PAYG withholdings and superannuation contributions automatically through Standard Business Reporting (SBR) software
“Employers will also have the option to pay their PAYG withholding at the same time they pay their staff,” the Minister for Small Business and Assistant Treasurer Kelly O’Dwyer said in a statement.
The ATO will kick off a pilot in the first half of 2017 with the option of making voluntary payments.
“In addition, the ATO will transition employers with 20 or more employees to STP. From 1 July 2018, employers with 20 or more employees will be required to use STP enabled software for reporting to the ATO,” Minister O’Dwyer said.
The government will provide businesses with a turnover of less than $2 million, a $100 tax offset for SBR enabled software.
When you’re starting out, business owners or sole traders often use manual payroll systems. But as you grow using an automated payroll system can not only streamline processes, but also assist you to meet your ATO requirements.