Employees are the most valuable assets for any business owner, so managing the payroll should be a top priority.
With even major organisations such as Queensland Health making payroll mistakes in recent times, here are some tips to ensure small business owners stay out of trouble with payroll tax.
Understand who is an employee
Whether your staff are employees or contractors is very important for tax and superannuation purposes. State tax obligations like payroll tax and federal obligations like PAYG withholding, fringe benefits tax and superannuation payments generally do not apply to workers classified as contractors.
This makes it attractive to hire contractors instead of employees, however the Australian Taxation Office (ATO) has its own tests for determining the difference. Get it wrong and your business can be subject to penalties, so it pays to check the
Choose the right software
With payroll an increasingly automated process, it is important you can rely on your software to be reliable and efficient. Ensure your business only uses tried and tested payroll systems, and do your research before choosing which one is right for you.
Systems like ADP, MYOB and Xero are among the most commonly used by small business owners, with differing costs depending on the size of business and the solutions required.
Keep track of legal changes
The tax code is one of the most frequently changing, and most complex, regulatory systems in any jurisdiction. Failing to keep track of changes can mean a costly audit, although fortunately the ATO is generally understanding when it comes to small businesses with limited accounting or legal expertise.
The best approach is to regularly monitor the ATO’s website for updates, or if you can budget for it, hire a tax adviser to keep your business up to date.
Missing deadlines
There are a lot of federal and state deadlines for annual, quarterly or monthly payments and reports that can be difficult to keep track of.
Again, the best approach is to hire a tax agent to take responsibility for keeping your business up to date. However, since the ATO and your relevant state taxation authority provide key dates on their websites you could simply put them into your own email calendar, such as Google.
Not having adequate backup plans
Given the costly implications of missing deadlines or making mistakes, it is crucial not to give any individual or program sole responsibility for payroll compliance. Sick days and system malfunctions are a reality for any business, but fortunately cloud technology now provides a reliable solution.
By storing information in the cloud, and giving more than one employee access to it, your business will not be putting all its payroll eggs in one basket.
Payroll mistakes can hit even the largest organisations but could be very significant for small businesses. But by following the rules, implementing the right solutions and staying on top of the process, small business owners and tradies can keep everyone happily paid.
If you need help financing your next big payroll, contact Prospa for information about a business loan. There is no cost to apply, so it could make sense to find out in advance how much you can borrow if you need to.