Payroll Mistakes Happen!

Small business payroll is one of the most complex areas of bookkeeping.

If you’re a business owner who does your own payroll, you already know how time-consuming it can be to get it right. And you probably also know how hard it can be to fix mistakes!

Setting up your Xero payroll correctly and paying employees appropriately are essential best practices for small business payroll.

And let’s acknowledge that paying your people is not only a legal obligation but also a vital part of maintaining good working relationships with the people who look after your business.

Everyday Payroll Issues That Can be Avoided

Here at MORE Bookkeeping Melbourne, we see a lot of payroll errors that could be easily avoided – here are some of the most common mistakes employers make.

• Underpayments – missing casual loading, allowances or penalty rates means you have to calculate back pay, superannuation and entitlements. If this problem occurs over months or more, the back pay amount (and possible penalties) can be significant and cause cash flow issues for the business.
• Missing deadlines for paying superannuation or paying wages late.
• Single Touch Payroll is not set up correctly or is filed with the ATO late.
• Inaccurate or incomplete payroll records, such as no timesheets or leave records. Are you accruing and tracking employee entitlements correctly?
• Not keeping payroll records secure and private.
• Not staying up to date with employment law changes; for example, the 2022 Secure Jobs, Better Pay workplace relations reform bill included many changes that affect small businesses.
• Not having the right software – for complex payroll, you need sophisticated software. The payroll software built into most accounting software is fine for many small businesses. Still, some businesses need a better solution to cope with the complexities of that industry or business type. For example, trying to make your software do a job it's not designed for means you have to do clunky workarounds that cause mistakes.
• Not classifying workers correctly – did you know it's a business owner's legal obligation to get this correct? It's not up to the employee to decide whether to work casually, part-time or as a contractor. It's up to the business owner to understand the nature of the working relationship and classify the worker accordingly.
• Not taxing correctly – does your employee have a study loan? Are they a working holiday maker? Entering the correct details from the employee's tax file declaration form can easily be missed.
• Paying money to employees outside of payroll. Employers often think that bonus payments can be made outside of payroll – but this is only true of cash gifts under $300. Anything more than that has to go through payroll.
• Getting termination payments wrong – this is a big one! Is it a dismissal, redundancy or voluntary cessation? Many factors affect an employee's final pay. Often the employee doesn’t find out that it’s incorrect until they do their tax return and their accountant lets them know of errors with classification or tax.
• Not paying attention to the conditions and provisions of the relevant modern award. And remember, even if you pay more than the award pay rates, the provisions still apply!
• Not understanding the financial reporting side of payroll. It’s not uncommon that the payments to workers might be correct, but how the various payments and liabilities are reported in the accounts is wrong, impacting the accuracy of your financial reports.

If You Want to Make Paying Your People Easy, Talk to us at MORE Bookkeeping Melbourne

Many other errors and problems can occur with payroll, but these are the most common ones we see. Getting your Xero payroll set up correctly from day one means your business won't have to fix mistakes later.

Even minor payroll errors can be frustrating for employees. They are engaged to work for your business and have the right to expect correct and timely pay, and meeting your obligations as an employer in this area is one way of letting your employees know you appreciate them!

Most business owners don’t have payroll training and yet try to do this themselves, thinking it's easier than it is and that it will save money. The fact is, fixing payroll errors can be time-consuming and costly, so it is definitely worthwhile getting it right from day one!

We’d love to help sort out your payroll systems. Talk to us today if you would like an appraisal of your current systems or if you'd like to hand over the management of your small business payroll to the MORE Books team of payroll experts.