Why are payslips necessary?
A payslip, also known as a pay advice, is a record for employees, so they can see that they’re receiving their proper pay and entitlements. It also helps employers to keep track of their payroll expenses.
Treating your employees well is essential for running a successful business. Payslips are important because they show that you’re compensating your employees properly for their efforts.
Is sending payslips to employees a requirement in Australia?
In short, yes. In Australia, providing employees with a payslip is a legal requirement. The Fair Work Ombudsman could issue you with a fine for not giving payslips or if they include false or misleading information.
When do I need to send them?
Within one working day of pay day. You also need to send them even when employees are on leave.
What information do I need to include?
While payslips might vary a little for your employees depending on their circumstances, here is a list of the details that you should always include:
- Employer’s name. This should be the company’s registered name, but you can also show other names that identify your business.
- Employer’s Australian Business Number (ABN). If your business has an ABN, include it under ‘employer’s name’.
- Employee’s name. This should be the name they used to register for their Australian Tax File Number (TFN).
- Pay period. This could be weekly, fortnightly or monthly, depending on your business’s pay cycles.
- Date the payment was issued. You always need to include this because it might be different from the pay period, for example, if you pay in advance.
- Gross and net pay to the employee. Gross pay is the total amount of pay before any tax deductions or other deductions. Net pay is the amount the employee receives after these deductions. But note that gross and net pay don’t include superannuation – this is a separate line.
- Tax withheld. This is also known as pay-as-you-go (PAYG). It is the amount calculated at the correct rate that you withhold from your employee’s wages and pay to the ATO on their behalf.
- Rate calculation. If your employee is paid at an hourly rate, this is where you show how you calculated your employee’s total pay. Include: the ordinary hourly rate, the number of hours worked and the total amount of pay. If your employee is salaried, show the details of their salary rates.
- Any additional deductions. Make sure you list each of these on a separate line and include the amount and details.
- Loadings, penalties and allowances. This can include things like casual loading, bonuses, incentives, overtime hours, penalty rates and termination entitlements.
- Super contributions. The compulsory super contribution is currently 10% of your employee’s earnings. If your employee chooses to make their own contributions, you should include the amount of their contributions in their pay advice.
- Salary to date. This should be the total dollar figure your employee has been paid in the current financial year up until the last payment date.
- Take-home pay. Most importantly, make sure you include the amount your employee gets to take home after all the deductions – their ‘take-home pay’.
Do I need to include an employee’s leave balance?
Showing leave balances isn’t legally required, but the Fair Work Ombudsman recommends that you do this. It’s convenient for employees as they can easily see how much leave they have, and it will also help you to keep track of your employees’ leave entitlements.
What is PAYG withholding?
‘PAYG’ is short for ‘pay as you go’ and it refers to the income tax employees pay on their earnings. It is the amount of tax that you withhold from your employees’ remuneration and pay to the ATO. This helps your employees meet their tax obligations, so they don’t end up with a huge tax bill at the end of the year. You need to register for PAYG. If you hire employees, contractors or any businesses that don’t provide you with an ABN, PAYG withholding is required. To figure out how much tax you need to withhold, you can use the ATO’s tool. You will also need to report the PAYG withheld amounts to the ATO. Thankfully, this is now automated with Single Touch Payroll (STP).
What is Single Touch Payroll?
In the past, Australian businesses had to submit paper reports to the ATO at the end of every financial year to show they were meeting their payroll obligations. In 2018, the Australian Government introduced Single Touch Payroll (STP) to make payroll reporting easier for businesses. With Single Touch Payroll, you no longer need to submit an annual payment summary. Employers report payroll activity to the ATO digitally every pay day. You can do this through accounting or payroll software if it is STP-enabled. If you don’t use payroll software, or the software you use isn’t STP-enabled, you can talk to a tax agent, who can help you find another solution. Alternatively, you can ask a payroll service provider to send reports to the ATO on your behalf.
How do I create payslips?
In recent years, account and payroll software has become popular among small and medium-sized businesses. There are a number of different providers to choose from. The advantage of using payroll software is that it helps you to keep your payroll activities organised by bringing everything together in one place and automating the processes. This software makes it easy to create and send payslips to your employees.
Another option is to outsource your payroll to a third-party provider. While this is likely to be more expensive than doing it in-house, it can offer peace of mind, as you are also outsourcing the responsibility. The outsourced payroll provider will take responsibility for ensuring your employees are paid correctly and on time, and that they also receive their payslips on time.
Do they need to be electronic?
Either out of concern for data privacy or for other reasons, some employers and employees prefer to stick to payslips in paper form. Payslips can be in either paper or electronic form, but either way, they need to include the same information. The Fair Work Ombudsman has set out some requirements for electronic payslips: they need to be sent by email or to an electronic personal account, and they need to be printable.
The advantage of using electronic payslips is that they help to keep everything organised, you can save money on paper, and it will make reporting to the ATO much easier. If you don’t want to use a software application, there are lots of free pay advice templates online that you can use.
What are the record-keeping requirements?
In Australia, you need to keep employee records for at least seven years. This includes pay records. It’s also important to make sure the records do not contain false or misleading information, they’re not altered, and they can be easily accessed by a Fair Work Inspector in case they ever need to conduct an audit.
What happens if I make a mistake and put the wrong information on a payslip?
Pay records show that you are paying your staff properly, so it’s important that the information in them is correct. But we all make mistakes, so what happens if you accidentally put the wrong information on a payslip? False or misleading information on a pay advice could result in a fine from the Fair Work Ombudsman. You can avoid this by:
- encouraging your employees to carefully check the details on their payslips and discuss any issues with you as soon as they notice them
- double-checking all payslips yourself
- if you spot a mistake – for example, you paid the wrong amount – make sure you fix the mistake immediately and let your employee know about it.
It’s always better if you can resolve any issues with your employee first before the issue escalates.
