What is the Payroll process?

Payroll refers to the process by which a company compensates its employees for their work. It involves the calculation, distribution, and management of wages, salaries, bonuses, and deductions, along with the proper documentation required by law and for internal record-keeping. 

Payroll process includes:

1. Calculate Gross Pay:

• Base Salary or Hourly Rate: Determine the employee’s gross pay based on their salary or hourly rate, depending on their employment contract.
• Overtime and Penalty Rates: If applicable, calculate overtime pay, penalty rates (e.g., weekend or public holiday work), and allowances (e.g., travel, meal, or accommodation).
• Bonuses and Commissions: If the employee is entitled to bonuses or commissions, these are added to the gross pay.

2. Calculate Deductions:

Australian payroll involves several deductions from employees’ gross pay, which can be categorized as follows:

• Tax Deductions (PAYG): The Pay As You Go (PAYG)withholding system requires employers to deduct tax from employees' wages based on their income and the Australian Taxation Office (ATO) tax tables. The tax withheld depends on the employee's income level and tax status (e.g., tax-free threshold, Medicare levy).
  • Income Tax: Based on progressive tax rates.
  • Medicare Levy: A standard levy (usually 2%) applied to most employees’ income.
• Superannuation Contributions: Employers are required to contribute a minimum percentage of an employee’s earnings (known as the Superannuation Guarantee (SG)) into a superannuation (super) fund. As of 2024, this rate is 11% of the employee's ordinary time earnings (OTE).
• Other Deductions: Depending on the employee’s situation, additional deductions could include:
  • Union fees
  • Salary sacrifice arrangements (e.g., extra super contributions or a car allowance)
  • Garnishments or court-ordered deductions

3. Recordkeeping and Compliance:

• Payslips: Employers must provide employees with a payslip on or before payday, which outlines the following:
  • Gross pay
  • All deductions (including tax, super, and other deductions)
  • Net pay (amount to be received)
  • Employer’s superannuation contribution
  • Pay period details

4. Payroll Reporting and Remittance:

• Single Touch Payroll (STP): Since July 1, 2018, STPreporting has been mandatory for most employers in Australia. This means that businesses must report salary and wage payments, PAYG withholding, and superannuation information directly to the ATO in real-time, each time a pay run is processed.
  • STP makes payroll reporting more efficient, reducing paperwork and increasing compliance with tax and superannuation requirements.
• End-of-Year Reporting: At the end of the financial year, employers must provide employees with a payment summary (now called an Income Statement), which details their total earnings, tax withheld, and superannuation contributions for the year. This is also reported to the ATO through STP.

At Y&S Accounting we provide advice for payroll process, avoiding possible penalties. Please do not hesitate to schedule an appointment with us on our website www.taxbne.com.au/.