As a business owner, do you pay yourself? You may be staring blank at that question, but it’s something you need to be across.

As bookkeepers and accountants, we can make the mental leap from “our business” to “someone who works in the business” as a matter of course – even if we’re sole traders. For technicians and entrepreneurs, this might not occur naturally.

If you add employees into the mix, things can get very hairy, very quickly. Payroll, Pay As You Go (PAYG) taxation, and superannuation are all intertwined as part of your own business bookkeeping.

Paying yourself as a business owner

There are two ways to pay yourself as a business owner – drawing cash from the business or paying yourself a salary. In the sole trader world, personal withdrawals are counted as profit and are taxed as income at the end of the financial year. 

Other business owners may set themselves up as an employee and draw a salary, which shows up on the books as a business expense. If you are setting yourself or others up as an employee in your accounting software, you need to take care of the “trinity” of obligations: payroll, tax, and superannuation.

The trinity of employee onboarding: payroll, tax, and super

Assuming you take on an ordinary employee (not a contractor in any way) you are responsible for paying them according to what’s agreed in the contract, paying their PAYG income tax to the Australian Tax Office (ATO), and their superannuation entitlement into their nominated super fund.

The trap that many business owners fall into is incorrectly calculating the super on employee accounts. According to the ATO, the “Super guarantee (SG) is the minimum amount you must pay to avoid the super guarantee charge. Super guarantee is 10.5% of an employee’s ordinary time earnings.” 

Your accounting software or Xero needs to know if the wages being calculated are inclusive or exclusive of super. If this isn’t setup properly, it can lead to massive headaches (and accusations of underpayment) the longer it goes on. It’s not only bad for your accounting but also your image as an employer, even if it was just an oversight.

Other obligations: paid leave

Your accounting also needs setting up to accrue and keep track of paid leave. Paid leave accumulates during the year and can even roll over into the following year if the employee does not use all their leave. Depending on what type of work your employees are engaged in, their leave entitlements can vary.

If your Xero or cloud accounting softwarre is set up properly from the beginning, it can essentially be a “one-click” payroll process each week, fortnight, or month – and then statements can be lodged quarterly to the ATO. If every box isn’t checked correctly, it can be troublesome to untangle and correct; even for bookkeepers.

If you use Xero (and we recommend that you do), this “single click” payroll can all be automatically reconciled with your business, tax, employee bank accounts, and their super funds.

Not sure if your payroll is set up properly?

Do you need to sort out your payroll and employee accounting systems? We’re Xero bookkeepers and can give you the help you need before things get out of control. Click here and get started.
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