Once you hire staff for your business operation, you need to make sure that you know the details of payroll. Employing someone is not as simple as having a verbal agreement. There should be a fair amount of initial preparation including business relations and business processes. There are many challenges that business owners face when hiring employees, here are the most common.
Superannuation only applies to ordinary time earnings However, superannuation can be applied to commissions, bonuses, loadings and allowances. For contractors that are sole traders, it is also important to make a payment for superannuation depending on the working arrangement’s nature.
Some business owners may consider a worker as a contractor simply because of invoicing and their services are only used sporadically. However, ATO will still consider the employee for superannuation purposes. Using the online contractor decision tool, the ATO will determine if superannuation still applies to the employee. It is important to pay superannuation on time to avoid penalties. The director can also be held liable for any late super, which is not paid for by the company.
It is mandatory for business owners to keep records of receipts for a period of 7 years. The records that should be kept include the pay records, leave records, hours worked super contribution, payment details and others. These records must be handled with confidentiality. When it comes to pay slips, employees must receive them within one working day of pay day. In case the employee is on leave, certain information must be included.
These days, small business bookkeeping software makes it easy for employers to calculate employees’ tax. However, the software is not capable of correctly taxing unusual payments such as commissions, terminations and bonuses. If these are not properly reviewed, it can lead to either overtaxing or undertaxing employees. For unusual payments, the tax must be calculated manually.
It is mandatory for employers to provide a choice of superannuation to workers whether they are employees or applicable contractors. In case the worker does not select a fund, superannuation contribution must be paid somewhere. The default fund will be used to make a payment. It is the employer that selects the default fund.
There are cases when payments to employees are not taxed or set-up correctly. This only implies that you are taxing a worker for a payment, which is considered tax free. The employee may not get a refund even especially if it is reported incorrectly on the annual Payment Summaries. The money that is supposed to be awarded to employees will end up going to the ATO if correct payroll is not set up.
Peter Broberg is a bookkeeping professional with over 20 years experience in the finance sector. With more than 2 decades of experience, Peter provides payroll and bookkeeping services on a professional level. His services cater to small and medium enterprises in Cannington, Kalamunda.