Guide to payroll accounting
What is payroll accounting?
Payroll accounting is the tracking of payroll-related expenses. This includes wages, salaries and bonuses, as well as superannuation contributions and other payslip deductions.
Accurate record-keeping is important for payroll accounting. Employees want to know that their employer will pay them on time and withhold any applicable deductions — so they get what’s owed to them. A blip in the payroll accounting process could cause the employee a lot of stress and undermine their trust in the company.
What are the main functions of payroll accounting?
Payroll calculations and taxes
One of the most basic functions of payroll accounting is calculating employee pay. The person calculating payroll must also make sure all deductions — for superannuation, benefits and taxes — are accurate.
Payroll accounting also tracks accrued annual holiday leave and other employee entitlements, such as sick leave and other personal leave days.
In companies that offer expense reimbursement, payroll accounting managers typically handle that process. Employee expense reports may require approval before payroll accounting departments can issue payments; expense reimbursements can trigger fringe benefits taxes (FBT) for employers.
The distribution of payments to employees is also the responsibility of payroll. That may involve collecting account information from employees to set up direct deposits and transferring digital payroll information to banks.
Reporting and compliance
Another key function of payroll accounting is reporting, and that’s much easier to do with payroll software, which brings together all key information in one location.
Payroll software can generate in-depth reports in moments — a useful feature when it’s time to lodge taxes or prepare for an audit.
How do businesses benefit from payroll accounting systems?
Automatic direct debit payments
From an employee’s perspective, one of the nicest features of a good payroll system is direct, automated payments. Every payday, the employee’s pay simply appears in their account.
Timely expense reimbursement
Payroll accounting software can track expense reports and ensure timely reimbursement. It can also withhold FBT, if applicable.
Accurate payroll tax calculations
Manual payroll tax calculations are far too time-consuming for companies with more than a few employees. Payroll accounting software automatically calculates and withholds taxes, ensuring a streamlined and error-free process.
Tracks employee leave
Keeping accurate records of vacation, sick time, and other personal leave is another key feature of payroll accounting software. This allows employers to track individual and collective accrued leave while also letting employees know what their current entitlements are.
Payroll accounting software calculates and tracks contributions to superannuation funds. By removing the potential for human error, this helps protect employee retirement savings.
How to do payroll accounting
1. Set up new employees
Your first step is to get your employees set up in the payroll system. This typically requires them filling out paperwork, such as insurance forms, their Tax File Number declaration, and a direct deposit authorisation.
Read this next: Employee onboarding: Everything you need to know
2. Collect timesheet data
Once employees are in the payroll system, they can start working — and you can start collecting time card information. There are several ways you can track hours, such as having workers scan badges, or logging hours with a digital tool to generate timesheet data for your payroll system.
Read this next: 12 reasons to use online timesheets
3. Calculate wages due
Calculating wages for salaried employees is simple, because their pay is usually the same from one pay period to the next. For hourly employees, you need to multiply the hours worked by their hourly wage and also calculate overtime pay or shift differentials (such as for working an overnight shift), if required.
4. Calculate payroll taxes
Next, you need to calculate, deduct and process payroll taxes. This is one area where a good payroll accounting system is especially useful — tax calculations can be complex.
5. Calculate wage deductions and contributions
After taxes, the next calculation is superannuation contributions and wage deductions for programs such as Study and Training Support Loans, for example.
6. Complete payroll payments
After calculating wages and subtracting taxes and deductions, you arrive at the net wage for each worker. The next step is to actually pay them, which is usually done via direct deposit.
7. Send STP reports
Finally, you need to send your Single Touch Payroll (STP) reports to the ATO. These reports include information about wages, pay as you go (PAYG) withholding and superannuation. Some payroll accounting software automatically submits STP reports.
Features to look for in payroll accounting software
Some payroll software allows employees to input their own bank, tax and superannuation information into the company system via a secure online form. This feature saves time for payroll staff and removes the need for paper-based processes.
One of the best features of modern payroll software is cloud access from anywhere and from any device with an internet connection. Mobile compatibility improves accessibility, increasing user adoption.
Rostering and time tracking
Best-in-class payroll accounting software includes time-tracking features and lets you generate rosters, helping you better manage your staffing requirements and labour costs.
As your business grows, you may need more than just a basic payroll platform. Look for a product that also offers advanced accounting features as an upgrade, and allows you to change your plan at any time.
You don’t want to pay for an enterprise SaaS solution if you’re managing payroll for a small business. Some payroll software offers flexible pricing based on your number of employees, so you can get the features you need at a manageable price. Support and training
If your business operates outside typical office hours, look for software that offers weekend support — you never know when you might have an urgent question! Also look for self-serve training content that can help you learn how to get the most out of your new payroll software.
Simplify payroll accounting with MYOB
Payroll is a vital part of doing business — and that means payroll accounting is, too. It can be a lot to keep track of, but the right tools can streamline your process and make payroll accounting a snap.
That’s where MYOB comes in. Our cloud payroll software helps you save time, reduce errors and stay compliant - so you can focus more on what matters in your business. Try it today.
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