Training Session 13 04 02 2021 Payroll explanation intro 2

Summary

The video script is an in-depth guide on payroll management, discussing its impact on business finances and legal obligations. It covers various business structures, employee types, and the importance of understanding gross vs. net pay. The speaker plans to share resources for further reading and emphasizes the need for employees to understand their roles and entitlements. The script also highlights the process of setting up new employees in accounting software, including forms for tax file numbers and employment contracts.

Takeaways

• 📅 Payroll is a multi-day process that involves various concepts and is not rushed through each day.
• ⏰ The speaker plans to cover topics generally and then send reading materials for deeper understanding.
• 💼 Payroll impacts both the Profit and Loss (P&L) and the Balance Sheet, highlighting the financial implications of hiring employees.
• 💰 The cost of hiring includes gross salary, superannuation, and other payroll costs, all of which are reflected in the P&L.
• 📉 The Balance Sheet tracks obligations like superannuation payable and income tax deductions, which are not immediately paid out.
• 📈 Unbillable time, where employees are not directly generating revenue, is a factor in calculating the true cost of an employee.
• 🏢 Different business structures like PTY, companies, limited companies, trusts, sole traders, and partnerships can employ people.
• 👩‍💼 The types of employees include full-time, part-time, casual, fixed term, shift workers, probationary, apprentices, and trainees.
• 📝 New employees are required to fill out forms such as the Employee Information Form and Tax File Number Declaration.
• 🔗 The Tax File Number Declaration is crucial for tax purposes, ensuring accurate tax withholding and compliance with the tax system.
• 📚 The speaker emphasizes the importance of understanding and being familiar with the terminology and processes, rather than memorizing all details.

Q & A

What is the purpose of the speaker's discussion on payroll?

The speaker is discussing payroll to provide an understanding of its concepts, its impact on profit and loss, and the balance sheet, as well as to prepare the audience for the practical aspects of managing payroll obligations and compliance.

How long is the speaker planning to spend on the payroll topic?

The speaker does not specify an exact duration but mentions it will take a few days, with each session lasting around 45 minutes unless a natural stopping point is reached sooner.

What are the different business structures mentioned in the script?

The different business structures mentioned are Pty (private companies), limited companies (public), trusts, sole traders, and partnerships.

Why is it important to consider the impact of hiring an employee on the profit and loss statement?

It is important because hiring an employee adds costs to the business, including both productive and unproductive time, which must be evaluated to ensure the business can afford the new expense without negatively impacting profitability.

What does the speaker mean by 'unbillable time'?

Unbillable time refers to the period when employees are being paid but are not directly generating revenue for the company, such as during training or when performing tasks that do not contribute to client work.

How is the employee's gross salary represented in the profit and loss statement?

The employee's gross salary, including all associated costs like taxes, is represented as a cost in the profit and loss statement, divided by 12 months to show the monthly expense.

What is the role of superannuation in payroll?

Superannuation is a mandatory pension contribution that employers make on behalf of their employees. It is tracked in the balance sheet under 'superannuation payable' and is paid out to relevant pension funds.

What is the difference between gross and net pay mentioned in the script?

Gross pay refers to the total salary before any deductions, while net pay is the amount an employee receives after taxes and other deductions have been subtracted.

What are the various types of employees mentioned, and why are they important to understand?

The types of employees mentioned include full-time, part-time, casual, fixed-term, shift workers, daily/weekly hire, probationary, apprentices/trainees, and outworkers. Understanding these types is important for managing payroll, benefits, and legal obligations appropriately.

What is the significance of the tax file number declaration form?

The tax file number declaration form is crucial as it provides the employer with the employee's tax file number, which is used to group all of the employee's earnings for tax purposes and ensure the correct amount of tax is withheld.

What is the process for setting up a new employee in the company's payroll system?

The process involves sending the new employee several forms for completion, including an employee information form, a tax file number declaration, and a contract. These forms collect necessary information to set up the employee in the accounting software like Xero and ensure compliance with tax and employment laws.

Outlines

00:00

📈 Introduction to Payroll Concepts

The speaker begins by discussing the payroll process, emphasizing that it will take several days and will cover various concepts. They plan to spend about 45 minutes on each day, stopping at natural points unless interrupted. The goal is to provide an understanding of payroll and its impact on the business landscape. The speaker will send reading materials and encourage attendees to take notes on key points. They will cover topics like business structures (e.g., PTY, limited companies, trusts, sole traders, and partnerships), payroll's impact on profit and loss, and balance sheets. The speaker also mentions the importance of considering an employee's productive and unproductive time and how it affects the business financially.

05:01

💼 Understanding Payroll's Financial Impact

This paragraph delves deeper into payroll's financial implications, focusing on how it affects the profit and loss statement and balance sheet. The speaker explains the concept of gross and net pay, using an example of a 50,000 annual salary. They discuss how the gross salary, including taxes, appears in the profit and loss, while the net pay is what the employee receives after tax deductions. The balance sheet is used to track superannuation (pension) and other payroll costs. The speaker also touches on the importance of understanding the legal obligations when hiring employees, such as compliance with regulations and ensuring timely payments of entitlements like leave.

10:04

📚 Employee Types and Onboarding Process

The speaker outlines various types of employees, including full-time, part-time, casual, fixed-term, shift workers, probationary, apprentices, and trainees. They emphasize the importance of understanding these classifications and their implications. The speaker then discusses the onboarding process, highlighting the need to send new employees all necessary information for proper setup. They mention sending forms like the employee information form and tax file number declaration, which are crucial for setting up employees in accounting software like Xero. The speaker also provides an example of a welcome email to a new employee, demonstrating a professional and welcoming approach.

Keywords

💡Payroll

Payroll refers to the process of calculating employee wages and salaries, as well as the payment of associated taxes and benefits. In the video's context, it is central to the discussion of business operations, as it impacts both the profit and loss statement and the balance sheet. The script mentions the time-consuming nature of payroll and its importance in ensuring compliance with legal obligations.

💡Business Structures

Business structures define the legal and operational framework of a company. The script identifies various types such as Pty (private companies), limited companies (public), trusts, sole traders, and partnerships. Each structure has different implications for payroll, affecting how employees are hired and managed within the business.

💡Profit and Loss (P&L)

The profit and loss statement is a financial report that summarizes the revenues, costs, and expenses incurred during a specific period of time. In the script, it is mentioned that payroll costs, including gross salary and other payroll expenses, are reflected in the P&L, showing the direct financial impact of hiring employees on a business.

💡Balance Sheet

A balance sheet is a snapshot of a company's financial position at a particular moment, showing what the company owns and owes. The script explains how payroll items such as superannuation payable and income tax are recorded in the balance sheet, reflecting the company's obligations and assets.

💡Gross Salary

Gross salary represents the total earnings of an employee before any deductions like taxes and superannuation. The video script uses the term to illustrate how the full salary amount is accounted for in the P&L, emphasizing the total cost to the employer.

💡Net Salary

Net salary is the take-home pay that an employee receives after all deductions have been made from the gross salary. The script contrasts gross and net pay, highlighting the importance of understanding these terms to manage payroll accurately.

💡Superannuation

Superannuation is a mandatory pension fund in some countries like Australia, where employers are required to contribute a percentage of an employee's salary into a retirement fund. The script discusses superannuation as a payroll cost that is tracked in the balance sheet and later paid out to pension funds.

💡Pay as You Go (PAYG)

PAYG refers to a tax system where income tax is withheld from an employee's salary and paid to the tax authority at regular intervals. In the script, it is mentioned as a payroll cost that is collected and later distributed to the Australian Taxation Office, affecting both the P&L and balance sheet.

💡Employee Entitlements

Employee entitlements encompass the various benefits and rights that employees are legally entitled to, such as leave and allowances. The script mentions accruing for these entitlements in the balance sheet, indicating the forward-looking financial planning involved in payroll management.

💡Legal Obligations

Legal obligations are the responsibilities that employers have to fulfill under employment law. The video script touches on the importance of being compliant with these obligations when hiring employees, which includes making timely payments and providing necessary information to employees.

💡Employment Types

The script lists various employment types such as full-time, part-time, casual, fixed term, and others. Understanding these distinctions is crucial for managing payroll correctly, as each type may have different working hours, pay rates, and entitlements.

Highlights

Introduction to payroll process and its duration, emphasizing the complexity of concepts involved.

The importance of setting aside time for each payroll day, aiming for 45 minutes unless a natural stopping point is reached.

The goal of sending an email with reading materials for further understanding after the general overview of topics.

Payroll's impact on Profit and Loss (P&L) and Balance Sheet, including the costs associated with hiring employees.

The concept of billable and unbillable time in relation to employee productivity.

Differentiating between net and gross salary, with a focus on gross salary reporting in the P&L.

The role of superannuation (pension) in payroll, and its tracking in the Balance Sheet.

Explanation of other payroll costs such as payroll taxes and their allocation in the Balance Sheet.

The legal obligations employers face when hiring employees, including compliance and tracking of payments.

The process of hiring, from job advertisement to interviews, and the types of employees such as full-time, part-time, and casual.

The significance of understanding different employee types and their respective definitions and implications.

The importance of setting up new employees properly, including sending necessary information and forms.

Example of a welcome email to a new employee, emphasizing a professional and supportive onboarding process.

The necessity of collecting employee information for efficient setup in accounting software like Xero.

The role of Tax File Number Declaration in the payroll process and its importance for tax withholding.

Details on how tax information is used in accounting software to automatically calculate tax withholdings.

The process of lodging tax information and the shift from manual forms to digital submissions in Xero.

Transcripts

now we're going to start on payroll and

payroll will take

i don't know how many days it'll take

but it's going to take a few days

i'm not going to go i'm not going to go

for too long for each day because

there are a lot of concepts once i go

through

um you know i'm going to look at the

time do that if you can give me

say 45 minutes if you tell me at 45

minutes because i've kind of got it all

but i'm going to stop

unless i get close and i'm sort of at a

natural stopping point

um i'm going to keep going until you

tell me

uh the idea is that i'm going to go

through these concepts and then you guys

will have a break and i'm going to send

an email with you know the reading that

i want you to do and

what i want you to do is to go away and

use the resources that i send through

and

just take your time i'm going to cover

these topics

in a general in a general type of way to

give you an understanding and context

and then

i want you to spend the time to actually

read

um the paragraphs or the page on each of

them and then i want you to take some

notes

of key points that are that you think

are important

in what you're reading now i can go

through all of those key points but i

think it's

way too much information and that you

need your own time

and space to to go through the specifics

but what i want to do now

is start off with talking about um

you know payroll and and how payroll

fits into the

overall um you know business landscape

so first and foremost we've got the

different business structures

right so you've got your um pty

companies which uh usually private

and you've got your um limited companies

which are public

um then there's there's trust there's

sole trader ships and there's

partnerships they're kind of the

the main ones right and each of these

entities

are able to employ another person now

for now i'm not going to talk about

subcontractors

i'm only going to talk about actual

employees

before i start going through the payroll

concepts and you know showing you some

things i'm going to share the screen in

a minute

so i'm going to talk to you about how

payroll impacts the profit and loss

and the balance sheet so that you just

get an idea of you know what we're

talking about you're running a business

you've suddenly got a lot of extra work

and you decide you're going to hire

somebody

right so you've been plugging along

doing your invoicing

paying for your expenses and now you're

going to hire somebody so there's

obviously a process to go through but

before you go through that process you

have to have a think about can you

afford this person

in terms of the p l all of their costs

both productive and unproductive

so there'll be time when you're paying

them that they're adding value there'll

be some time that

is spent in you know training and sort

of

unbillable time time where they're not

really um bringing

much into the balance into the p l

so this unbillable time every employee

depending on what um

what industry you're in will have a

certain amount of unbillable time

so in in your case and majority of the

people in our industry

depending on what lev what position

they're in um

you know we're looking at about between

80 and 90 percent of time

is going towards client work and then

between 20 and 10 percent is going

towards goodity time

right so now you're looking at you're

hiring a person and um

as i mentioned before in serbia you guys

talk about net

net is um and gross is brutal so we talk

in australia

in terms of gross remember when i said

in your p

l when we're talking about what it costs

you

so their whole gross salary um if they

let's i'm going to use a round figure

let's say that their salary is 50 000

a year their whole salary will appear in

the

in the profit and loss um including

you know the tax everything will sit

there because that's what it's costing

you as a business

it'll be divided by 12 if they're you

know we're talking a simple case they've

got a

salary you'll see their cost across the

12 months

and then underneath that you'll have

their superannuation

which is um the in in serbia that's the

pension

that's the amount that goes towards the

pension for when they retire

and then there are a host of other

payment uh payroll costs which we're

going to talk about later

so i don't want to bring in too much

detail maybe i'm going to step it

through

so we're talking about now what is the

cost um to hire somebody and that's

going to be in your profit and loss

so the part that goes into the balance

sheet is

the part that that we have to pay that

we're tracking

but it's actually going to different

places isn't going to the employee

we have um you know when we when we do

that um

50 000 pay divided by 12 that month

we will have superannuation which is the

pension

and we know that we're holding that

amount

in the balance sheet under

superannuation payable that is then

being paid out

to the relevant pension funds then

there's remember

we talked about the pay as you go which

was the amount of

income tax that we have to deduct from

that gross

salary from the brutal we're going to

deduct the

tax and then we're going to end up

paying the employee the

net pay right so really if i can get you

comfortable with net

and gross so that i can continue to just

use those terms

the income tax also sits in the balance

sheet

we collect it until it's time to

distribute it

to um the australian taxation office the

ato

right so we're using our balance sheet

for

a whole host of other things for example

when you hire an employee

they're going to be um allowed to have

some entitlements

um and and some kind of types of leave

and so we are accruing for that and

remember we talked about accruing we're

allowing for it now

so that we can pay it out later and

we're keeping that up in the balance

sheet as well

so we're we're accruing you know what do

they have for sick pay

well um we don't agree on the balance

sheet but annual leave

later on long service leave and i will

talk about each of those a bit more in

detail just so that you get an idea

of the structure of it and how it works

right so the moment that you decide to

hire

any business decides to hire an employee

there's a whole set of

legal obligations that need to happen

and part of our role

is to support our clients in making sure

that they're compliant and that we're

keeping track of everything

and that we're making all the payments

on the due dates on their behalf

and that we're making sure that the

employees are getting um everything that

they need to get and access to the

information they need

to get okay um so i'll just

touch on the type um okay so then when

when you when an employer is deciding to

hire

um they're going to put out an ad

usually seek.com

i don't know whether you guys have

access to that in serbia but there's a

whole host of

different platforms some people go

through recruiters

but you know they basically do a job

description and they say i need to hire

this

role um then they take in the interviews

and the process that you guys just went

through so then when they're hiring

somebody they need to decide

you know what type of employee will they

be

and this will depend on what industry it

is on the need

um so um there's a whole host

i'm going to just quickly say them part

of your activity will be to go through

and read in detail um what each of these

you know the definitions and there's not

a lot there um

it's it's really quite neat and tidy in

terms of

explaining what each role is but if i

was to go through it now

there's no benefit you're not going to

retain it so it's more that i want to

just cover what exists

right for now so there's a full-time

employee which is somebody who in

australia is 38 hours

per week as a part-time employee

part-time means that they have set

regular days and hours that they're

going to work um then we have casual

employees casual employees generally

don't know

when you're going to call them they they

are on call and they have some penalty

some

additional loadings and and rates to

cover for the fact that they're not a

full-time employee and they don't have

all the same benefits

um then there's things like fixed term

there's shift workers

um there's daily hire and weekly hire

employees

there's employees on probation which

means you've given somebody a job

but you haven't decided yet you're

testing them out to see whether they're

going to be able to stay

there's apprentices and trainees and

there's a whole host of things to know

about apprentices and trainees and that

will be

touched on later on um and out workers

so there's just a list of different

types the main ones that we

deal with the main ones that we come

across are full-time part-time and

casual

and the other ones are just there for

you to just read

and sort of commit to memory so you've

got that within your knowledge base so

these aren't words that you you've never

heard of before it's just about

becoming comfortable with the

terminology

and knowing where to go to read up on

things because

i want you to read through it and do

your little do your notes and your

points but i'm not expecting that you're

going to memorize all this

because what i'm going to do is point

you to the website where this

information

is and it's really about knowing where

it is how to read it getting comfortable

with that because

the information will always be there and

it'll always be the most up-to-date

so it's just really knowing that it

exists and that and having an awareness

about it and knowing where you can find

it that's really important

so um you know at the crux of it our

role

is in setting up these employees right

so we we start from um

sending them all the information that

they need to get set up properly and

then

for managing all of the payroll and all

of the obligations so now i'm going to

share my screen

you know here is an example of a client

who has employed a new employee you can

see

delena is that right

you can all say that great so here's an

example

um of you know me welcoming her so a big

welcome to censalva college from the

accounts team we look forward to working

with you

in preparation for our first fortnightly

pay on the second of february please

find the attached forms

for completion please email the

completed forms to accounts at your

earliest convenience and don't hesitate

to contact us if you have any queries

so we're starting at the new school the

principal is really nervous

one of the teachers that said that she

was going to start

has said that she changed her mind she's

worried because it's a new school

i know the principal's really nervous

and i know that this girl is also

nervous so i'm reading between the lines

and i'm trying to make her feel welcome

i'm trying to present a professional

team where she feels secure

and um you know obviously i'm the

treasurer here as well but regardless

just i'm doing my best to make her feel

that

you know she's she's working for a

company that isn't just starting and

it's all

being set up that actually there's you

know ryman reason and everything is

is going to work professionally for her

she responded really well she was very

quick

to give the information so you know the

message that we have in here

you know it's going to depend on what

the situation is but

there's you know usually four things

that we send um to every new employee

and

really what we're doing is we're sending

this information three of them are

statutory and

the um employment information form is

something that we're collecting

so that we can have all the information

that we need when we are about to set

them up in xero

um after we've after the first day or

two

i don't know how long it will take that

we go through

all of the concepts then we will go

through um the practical

and actually go through and do it and

then you'll have a chance to also undo

it so

you know here's an example of an

employee information form that we

create and we're always we put in the

logo

um and onboarding would usually do this

you know we're asking for all the

information that we need so that we can

efficiently

set them up in xero and we're not having

to go back and forward

um to get more information right the

next thing that

they'll need to fill out it's called a

tax file

number declaration they usually have

about 28 days from when they first start

to complete this form

um you don't need to re i'm going to

send you

um forward you this email just for you

to have a look at it and

and generally scan i don't need you to

go through and read all this and

memorize it it's more about becoming

comfortable and familiar with it and

knowing what it is

so in australia the moment you start

before you can start working you have to

register for a tax file number you guys

must have like a social security number

or something

and that number stays with you for the

rest of your life so same with

us here that's our tax file number and

we need to give our employer that number

and that is how the government can group

all of your earnings and can

basically make sure that you're paying

the right amount of tax and that you're

not cheating the tax system

um so you know this just basically goes

through all of the areas you don't have

to worry too much about this what's

important is that

the person completes the whole form um i

think this one's digital

so they have to enter in their number

they're the ones that are telling you

um what basis they're employed on you're

obviously looking and then when you're

i'll show you the

an example of a contract if you see a

discrepancy you would raise it

so if they've checked full time but you

actually see the contract and it says

part-time that's something that you

would raise

um they are telling us whether they're

residents for tax purposes

they're telling us if they're claiming

the tax-free threshold and i'll

i'll talk about that a bit later when i

tell you about the australian tax system

um we in australia there's a higher

education loan

um students that study can um leave

their

their student loans to pay later through

the tax system so

if they're telling you yes or no here

what you're using

or this information is basically being

filled in

in the accounting software and it's it's

determining then

how much tax needs to be withheld from

every single pay period automatically

they need to sign it um we don't we

don't have to fill this out anymore

because

if we're if they're in xero we can lodge

it immediately from xero

but we still get this information from

them

and you know it's our obligation to make

sure that they have this