What Is Payroll Processing? Steps, Types, Challenges

Payroll processing is the most significant financial obligation of businesses with employees. Employers must pay employees for the time they use to work for the business, including attending meetings and opening and closing retail stores. The salaries must be paid monthly via cash, cheque or electronic funds transfer. If they fail to pay their employees, it is considered wage theft in Victoria. However, hiring an intern for unpaid work to help them gain experience is lawful. Other unpaid work arrangements include student placements, unpaid trials and work experience and internships.

Besides these arrangements, all other workers must be paid for their contribution to the organisation. The employers decide the payments based on type of employment, such as full-time, part-time and casual workers. Reliable Melbourne bookkeepers can help determine every employee’s minimum pay rates and allowances. Payroll processing ensures smooth salary credits for all workers on the due date. Here is everything you need to know about payroll processing, its steps, types and challenges. It will help you satisfy employees and comply with the legal obligations. 

1. What Is Payroll Processing?

Payroll processing is a system implemented by all businesses to ensure their employees are paid accurately and timely. The remuneration paid to the workers includes wages, salaries, superannuation, and cash and non-cash benefits offered by the business. The Australian government has provided minimum pay and conditions for every industry and occupation. Every employee in the country is entitled to a minimum wage and the 11 National Employment Standards (NES).

Payroll processing must comply with the Fair Work Act 2009, the Income Tax Assessment Act 1997, and the Superannuation Guarantee (Administration) Act 1992. Businesses with employees also have to meet tax and superannuation obligations. Qualified bookkeepers in Melbourne can help navigate these regulations and avoid penalties.   

2. Steps of Payroll Processing

The steps of payroll processing are as follows:

• Payroll processing starts with the collection of financial information from employees, such as account details, tax file number (TFN), superannuation fund data, employment type, and work hours.

• Next, the bookkeepers use accounting software to calculate the pay precisely for every individual based on the data. These tools help to record the leaves and benefits ensuring effective payroll management.

• After the gross pay has been calculated, the bookkeeper deducts income tax and other deductions.

• They determine superannuation contributions, submit the funds, and use appropriate tools to maintain compliance with Superannuation Guarantee (SG) requirements.

• Melbourne bookkeepers deduct the super contributions from the gross pay and determine the net income that must be credited to the employees’ accounts.

• They have to maintain up-to-date records of each payment cycle, which becomes automated with the help of software. The records must include payslips, tax reports and pay summaries.

• They are also responsible for calculating payroll taxes. For employers in Victoria, the payroll tax-free threshold is $900,000 for annual returns and $75,000 for monthly returns.    

• The employees should be provided with their payslips with the breakup to help them determine their net income and deductions.  

• Employers must submit payroll data (STP reporting) to the Australian Taxation Office (ATO) and superannuation funds. The data must include information about PAYG withholding and superannuation contributions.  

3. Types of Payroll Processing Systems

There are three types of payroll processing systems used by employers in Victoria.

In-House Payroll Processing

Many micro and small businesses with limited employees rely on manual payroll processing. It involves filling out timesheets and using them to calculate wages and taxes before paying salaries. However, this system has a high risk of errors and is time-consuming and tiring.

Outsourcing Payroll Management

Large businesses with a massive staff usually hire a bookkeeping agency to perform payroll processing. They also use software to maintain accurate records and pay salaries on time. However, it can be expensive for the employer.

Utilising Payroll Software

Employers with significant staff hire a proficient bookkeeper in Melbourne to work for them full-time. These experts use payroll software to automate strenuous tasks and maintain error-free payroll. It is faster and makes the process highly efficient while being monitored by a specialist.

4. Challenges to Payroll Processing

Payroll processing is a complex task that is best left to professionals with expertise in the field. There is a lot of room for making mistakes and attracting penalties for wage theft. The most common among them is non-compliance with laws and tax regulations in Melbourne. Also, data privacy is a concern with various cyber attacks affecting small businesses. Since the employer has confidential financial information about the workers, they must ensure it is safeguarded and inaccessible to unauthorised users.

Employers must have a data backup to protect the information in case of data breaches and thefts. In addition, those who use manual payroll processing can make calculation mistakes that can cost them significantly. Payroll software can help eliminate all the challenges by reducing errors and boosting automation.

Wrapping Up

Payroll processing is integral to running a business with employees. It cannot be neglected because of the compliance obligations and the responsibility towards compensating the workforce for their contributions. Entrepreneurs must allocate the best resources and tools to manage it effectively.