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What is payroll processing?
Payroll processing covers all the steps required to manage employee payments, payroll records, and ATO reporting requirements.
If you’re a small business owner, you might handle payroll processing yourself. Larger companies might hire a bookkeeper or payroll manager to handle payroll or outsource their payroll processes.
What are the main functions of payroll processing?
Payroll preparation
You need to open a payroll bank account to pay employees. You should only use this account to pay your employees, and hold money for taxes and other payroll-related expenses.
Download our FREE payslip template here
Payroll calculations and deductions
You need to calculate each employee’s gross pay based on their contract, including pay for public holidays, leave, and overtime. Payroll software, such as MYOB, can automatically calculate pay, superannuation contributions, and other deductions, such as:
PAYG (pay-as-you-go withholding)
taxes on benefits, including bonuses and allowances
Payroll payments
You should always issue payslips to each employee detailing their gross income, any deductions, and their net pay. Payroll software can issue direct deposit payments and provide a portal through which employees can access and review their pay slips.
Payroll record keeping
You should keep payroll records (electronic or paper) for 7 years.
Payroll compliance
You must submit a Single Touch Payroll (STP) report to the ATO detailing payroll payments, super contributions, and tax withholding. (MYOB can automatically issue these reports for you).
How do you process payroll?
1. Choose a payroll system
There are three basic payroll systems:
manual payroll (internal payroll processing for small teams)
outsourced payroll (a third-party service provider that manages all payroll functions)
payroll software (on-premise or cloud-based solutions for teams of all sizes).
Keep in mind that cloud-based payroll software like MYOB simplifies processes and doesn’t require you to manage software security or updates, this service is included in your subscription fee.
2. Create a payroll policy
Before you create a payroll policy, review the ATO and the Fair Work Ombudsman guidelines. Pay particular attention to STP and superannuation requirements to make sure you’re compliant.
Here are some other items to include in your payroll policy:
payment dates / schedules,
payment methods
timekeeping procedures
overtime rules
payroll deductions and
employee benefits.
3. Collect employee details
Next, you need to collect employee details, including tax file number, bank and direct deposit details, and superannuation fund choice.
If you use a cloud-based payroll system, it’ll typically allow employees to submit their bank, tax, and superannuation details through a secure self-service portal, saving you administrative work and empowering employees to manage their own information.
4. Set up time-tracking
Employers have to maintain accurate records of employee hours to determine their pay. You could do this with a payroll system that has an integrated time-tracking and rostering feature. Alternatively, you could use an analog approach, such as paper timesheets.
5. Pay employees
The next step is to run payroll and pay your employees on time. Bear in mind weekends and public holidays as they could potentially delay payments. To counter this, you may have to run payroll a day or two earlier to make sure employees get paid on time.
Download our FREE payslip template here
6. Record and report your payroll
The final step is to update your payroll records. You also need to send payroll taxes to the relevant state or territory revenue office.
The benefits of streamlining payroll
Saves time on admin
Streamlining payroll workflows like timekeeping, pay calculations, and monthly reconciliations eliminates unnecessary steps and double handling. This will save your team time and allow them to focus on what matters most to your business.
Improves accuracy and reduces errors
Streamlined payroll processes help reduce the risk of manual errors. When data flows seamlessly between time-tracking, HR, and payroll, it reduces duplication and ensures employees are paid correctly every time.
Enhances employee satisfaction
Paying employees accurately and on time is one of the best ways to build trust and morale. Streamlined payroll processes make this easier to achieve by ensuring pay runs are timely, transparent, and error-free.
Ensures compliance
Payroll compliance can be complex and time-consuming. A well-structured payroll process helps you stay aligned with current tax laws, wage standards, and ATO requirements, reducing the risk of costly penalties.
Boosts cash flow management
Streamlining payroll will provide clearer visibility over pay cycles, superannuation contributions, and tax obligations, allowing you to better manage cash flow and forecast business expenses.
Payroll processing best practices
Automate with payroll software
Forget about error-prone spreadsheets or third-party outsourcing and invest in high-quality, cloud-based payroll software that automates your payroll processes.
Integrate your existing workflows
Better still, invest in payroll software that brings together other aspects of workforce management like onboarding, rostering, leave, and time-tracking.
Set alerts and reminders
Schedule reminders for important dates, such as tax reporting deadlines and payroll processing days.
Secure employee data
Payroll data is especially sensitive, so make sure to keep it secure and well-managed. Storing information in a secure system with clear privacy and access policies helps prevent unauthorised use or data tampering.
Enable employee self-service
Using a payroll system that allows employees to securely self-manage their personal, tax, and banking details speeds up payroll processes and improves the overall employee experience.
Stay compliant with payroll legislation
It’s essential to stay up-to-date with current payroll legislation, tax updates, labour laws, and other government policies to stay compliant.
Benefits of automating payroll with cloud-based software
Simplifies record keeping and reporting
Cloud-based payroll software keeps all payroll data in one secure location, making record keeping and reporting quick and easy. Reports can be generated in seconds, helping you identify inefficiencies and make better-informed decisions.
Supports scalability
As your business grows, cloud-based payroll software scales with you. Flexible service tiers mean small businesses can start with the essentials and add on functionality as their workforce increases.
Ensures compliance with regulations
Cloud-based payroll software can lighten the load of staying up to date with regulations by sending you alerts or automatically reflecting new ATO and Fair Work changes.
Enhances employee satisfaction
Cloud-based payroll software gives employees secure self-service portals to access payslips, submit leave requests, and update personal information from any device. This provides a better experience while reducing admin for your team.
Automate time-sensitive alerts
Many cloud-based systems can detect errors in real-time and notify you before payroll is processed, preventing issues before they happen.
Improves data security
Cloud-based payroll systems use the most advanced security measures to protect sensitive employee data. Rest assured your data is protected against cyber-attacks, data loss or compromise.
Automate payroll processing with MYOB
Payroll processing is a critical operation for any business; there's no room for error.
With MYOB’s cloud payroll software, you can automate your payroll processing and have the peace of mind that you have everything covered.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.