1. Chapter One The Payroll System
Payroll Accounting
Chapter One
The Payroll System
Payroll Accounting

2. Wages and Salaries
Q What are wages and salaries? A Business expenses for work performed by employees.
Payroll Accounting

3. 1.1 Introduction to Payroll
PAYG (Pay As You Go) Withholding Tax: The employer deducts tax from the pay of employees and remits the income tax to the Australian Taxation Office (ATO).
Payroll Accounting

4. Employer Obligations ▪ Pay correct wages. ▪ Maintain records.
▪ Register as a PAYG Withholder.
▪ Withhold PAYG Withholding Tax.
Report and pay PAYG Withholdings on the BAS or IAS.
▪ Provide PAYG Payment Summaries
▪ Lodge a PAYG Withholding Annual Report
▪ Pay Superannuation Guarantee.
Payroll Accounting

5. Internal Controls
( a ) Adequate supervision and authorisation of hours ( b ) Separation of duties ( c ) Review of register and journals
Payroll Accounting

6. Accurate Payroll Accounting
Regular and precise payment of wages
and salaries is an important aspect of human resource management.
Timely and reliable recording of payroll details is also needed to meet statutory and industrial award requirements.
Payroll Accounting

7. Glossary of Terms
The terms in the Glossary will be used in future chapters. As you come across each term, ask yourself:
Are there any words or terms in the explanation which I don’t understand?
How could I explain this concept to someone else, in different words?
Which specific payroll function does this term relate to?
Why is this term important? Why would I need to know it?
Payroll Accounting

8. 1.2 Legislation and Regulatory Bodies
The pay rates and working conditions of workers may be regulated by federal or state legislation, industry awards, agreements and employment contracts.
Payroll Accounting

9. Fair Work Australia Range of functions relating to:
minimum wages and employment conditions
enterprise bargaining
industrial action
dispute resolution
termination of employment
other workplace matters.
Payroll Accounting

10. Fair Work Ombudsman
Manages and provides information and advice about workplace rights and rules.
offers people a single point of contact for them to get information
educates people working in Australia
investigates complaints or suspected contraventions
litigates to enforce workplace laws
builds strong and effective relationships with stakeholders.
Payroll Accounting

11. The Australian Taxation Office
Administers taxation legislation. It is the collection agency for most Commonwealth taxation revenue including personal income tax, company tax and GST.
Payroll Accounting

12. Tax File Numbers (TFN)
Used by the ATO to individually identify each taxpayer.
Payroll Accounting

13. TFN Declarations
An employer needs to obtain a TFN Declaration form from each of their employees. If the employee does not declare a TFN on the form, tax is withheld at 49%.
Payroll Accounting

14. PAYG Withholding Tax Tax deducted from wages.
Also known as PAYG Withheld.
Paid by the employer on behalf of the employee to the ATO as an instalment of personal income tax of the employee.
Payroll Accounting

15. PAYG Withholding Tax Business’ Obligations: Register Keep records
Collect TFN Declaration and Withholding Declaration Forms
Withhold the prescribed amounts
Report and remit to the ATO
Issue PAYG Payment Summaries.
Payroll Accounting

16. Superannuation Guarantee
Exemptions:
less than $450 per calendar month
under 18 working < 30 hours per week
< 30 hours domestic or private work for non-business employer.
Payroll Accounting

17. Superannuation Guarantee
9.5% of the employee’s Ordinary Time Earnings (OTE) to a complying superannuation fund (CFS).
Ordinary Time Earnings:
wages and salary paid
non-expendable allowances
casual loadings
over award payments
shift payments
leave and workers compensation payments.
Payroll Accounting

18. Super Payment Due Dates
Superannuation Quarter
Payment due date
1 July - 30 September
28 October
1 October - 31 December
28 January
1 January - 31 March
28 April
1 April - 30 June
28 July
Payroll Accounting

19. Fringe Benefits Tax
Tax on non-cash benefits to employees or employees’ associates.
Common Examples:
Car Fringe Benefit
Expense Payment Fringe Benefit
Loan Fringe Benefit
Payroll Accounting

20. Medicare Levy 2% of taxable income
Levy is included in amounts listed in Tax Tables (see Appendix of your book)
Medicare levy surcharge or reduced Medicare levy may apply to specific employees.
Payroll Accounting

21. Australian Business Number (ABN)
Unique 11 digit number identifying an Australian business.
Must be stated on Tax Invoices.
Allows participation in GST system.
Required to purchase a .au domain name.
Payroll Accounting

22. Higher Education Loan Program (HELP)
A student’s contribution to the cost of a tertiary qualification.
Indexed loan from the government.
Payroll Accounting

23. Other Payroll Legislation
Payroll Tax
Privacy Act 1988
Australian Bureau of Statistics Act 1975
Workers Compensation
Tax Agent Services Act 2009
Payroll Accounting

24. 1.3 Collecting Data
Awards, Individual contracts and Enterprise agreements.
Tax File Number Declaration.
Withholding Declaration.
Deductions notification.
Superannuation Standard Choice Form.
Payroll Accounting

25. Payroll Accounting

26. Data to be Collected How much should an employee be paid?
Is the employee claiming the tax-free threshold?
Answers to these and other questions are found in various documents that the employer gathers
Payroll Accounting

27. Awards and Agreements
Industrial Awards These can be Federal or State. Federal Awards cover the whole country and State Awards cover individual States. Enterprise Agreements A contract resulting from negotiations between the business owners and groups of employees
Payroll Accounting

28. Tax File Number Declaration
All employees are required to complete a TFN Declaration when commencing work with an employer
Payroll Accounting

29. Payroll Accounting

30. Withholding Declaration
Used for:
amending details originally submitted on the TFN Declaration; or
for the employee to request additional tax to be deducted from his/her wages
Go to and search ‘NAT 3093’ or ‘Withholding Declaration’.
Payroll Accounting

31. Payroll Accounting

32. Payroll Accounting

33. Deductions Notification
Employers and employees may reach an agreement to deduct regular amounts for personal expenses from the employee’s pay.
Examples of deductions:
medical insurance
housing loan repayments
union fees
Payroll Accounting

34. Superannuation Standard Choice Form
Employees can nominate a particular superannuation fund for their Superannuation Guarantee payments To do so they complete a Superannuation Standard Choice Form.
Payroll Accounting

35. Payroll Accounting

36. Employee Record / Employee Card
Payroll Accounting