Hiring employees is a big step for any business — and unfortunately, the paperwork doesn’t end once you’ve run their first pay.
From setting up PAYG withholding and superannuation to maintaining leave records and processing final pay correctly, employers have obligations throughout the entire employment relationship.
Whether you’re hiring your first employee or saying goodbye to a long-term staff member, getting the payroll side right can save a lot of trouble later.
Hiring: Get the Setup Right From Day One
Before an employee starts, you need to establish the basics of their employment.
Are they full-time, part-time or casual? Which award or enterprise agreement applies? What are their ordinary hours and pay rate? Are there applicable penalty rates, overtime, allowances or leave entitlements?
Getting the classification wrong at the beginning can flow through every pay run that follows. Fair Work recommends employers understand the applicable minimum pay and employment conditions before hiring.
You’ll also need to collect the information required to establish the employee in payroll, including their tax, bank and superannuation details.
Once they’re set up, your payroll system should correctly calculate their wages, PAYG withholding, superannuation and applicable leave accruals.
PAYG Withholding, Super and STP
When you pay employees, you’re generally responsible for withholding tax from their wages and reporting payroll information to the ATO through Single Touch Payroll (STP).
STP reports information including salary and wages, PAYG withholding and superannuation liabilities to the ATO as payroll is processed. At the end of the financial year, employers generally need to check and finalise their STP information by 14 July.
Superannuation is another important employer obligation. It needs to be calculated correctly, reported through payroll and paid in accordance with the applicable requirements.
The important point is that payroll isn’t just about the net amount transferred to your employee’s bank account. There are tax, super and reporting obligations sitting behind every pay run.
Keep Good Records While They’re Employed
Good payroll record-keeping matters throughout an employee’s time with your business.
Employers are required to keep certain employee records for seven years, including records relating to pay, hours worked, leave, superannuation and termination of employment. Employees must also receive a pay slip within one working day of being paid.
Depending on the employee and their working arrangements, your records may need to cover things such as:
- ordinary hours and overtime;
- wages, bonuses, allowances and penalty rates;
- PAYG withholding and other deductions;
- leave taken and accrued; and
- superannuation contributions.
Accurate records aren’t just about compliance. They also make it much easier to answer questions about an employee’s pay or entitlements and identify payroll errors before they become bigger problems.
When an Employee Leaves
Whether an employee resigns, is made redundant or their employment is terminated for another reason, there are a few extra payroll steps to work through.
Their final pay may include outstanding wages, unused annual leave, applicable leave loading, payment in lieu of notice and, in some circumstances, redundancy or long service leave.
The tax treatment of termination payments can also differ from an employee’s normal wages. Some amounts may qualify as an employment termination payment (ETP), while others — such as ordinary wages and unused leave — are dealt with separately.
This is one area where it’s worth checking the treatment before simply adding everything to the employee’s final pay run.
Don’t Forget the Fair Work Side
Ending someone’s employment isn’t only a payroll exercise.
Depending on the circumstances, there may be requirements around notice, redundancy, dismissal procedures and other employee entitlements. Employers generally need to provide written notice when terminating employment, subject to applicable exceptions, and minimum notice requirements can apply under the National Employment Standards.
There are also special rules that can apply to small businesses, including aspects of redundancy and unfair dismissal.
If you’re unsure about the employment law side of a termination, it’s important to obtain appropriate workplace relations or legal advice before taking action rather than trying to fix the payroll afterwards.
Finalise the Payroll Records Properly
Once the employee’s final entitlements have been calculated and paid, make sure the departure is also properly reflected in your payroll records.
The employee’s termination date and the way their employment ended should be recorded, and the relevant payroll information should be correctly reported through STP. Fair Work also requires employers to retain records about how employment was terminated and, where applicable, notice provided.
In some cases, an employee may also require an Employment Separation Certificate for Services Australia.
Don’t simply deactivate an employee in your payroll software and assume the job is finished.
The Bottom Line
Hiring and firing both come with more administration than many business owners expect.
Good payroll processes should cover the employee’s entire journey with your business — from getting their classification and payroll setup right at the beginning, through accurate wages, super, leave and record-keeping, to calculating and reporting their final pay correctly when they leave.
Getting these things right as you go is much easier than trying to reconstruct payroll records or correct months of reporting later.
If you’re employing staff and need help with payroll, PAYG withholding, superannuation or the tax treatment of employee payments, get in touch with the team at Geyer Accountants. We can help make sure the numbers and reporting are taken care of, so you can focus on managing your team and your business.
