Growing your trade business to a point where you need to hire an extra pair of hands is an impressive milestone. However, moving from a one-man-band to a team of two (or more) comes with responsibilities you might not have had to deal with before – like payroll.
Unfortunately, paying your staff isn’t quite as simple as transferring money to their bank accounts. One of the key decisions you’ll need to make early on is whether you want to manage payroll yourself or outsource the task to an expert. If you choose to DIY, there are some common mistakes you’ll want to avoid.
Short on time? Skip ahead
As an employer, you’re required to deduct and pay income tax on your employees’ behalf. In the trades, it’s common to hire subcontractors (also known as independent contractors) and this is where things can get a little murky, because subbies are responsible for meeting their own tax obligations, meaning you don’t withhold any deductions from their pay.
To avoid paying fines and interest for incorrect payroll filings, it’s best to get your head around the differences between employees, contractors and subcontractors.
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If there’s one thing you do not want to do, it’s to miss a payroll deadline, because there’s a chance it’ll cost you. While deadlines aren’t the same in each country, you’ll generally find the types of deadlines are similar.
The three you need to know about are:
Every month, you must pay HM Revenue and Customs (HMRC):
Pay what you owe by the 22nd of the month (or the 19th if paying by post) – you may have to pay a penalty if you do not. For more information, visit www.gov.uk
There are three types of tax forms that an employer must fill out. These are:
Every quarter, you must pay the Australian Tax Office (ATO):
Under the payday filing system, you’ll have to file your employees’ pay information within two working days of each payday. If you pay weekly, that means you’ll have to file the information to the IRD every week.
You’re also required to make some deductions from your employees’ pay, including income tax (PAYE), KiwiSaver, child support and student loan repayments.
You must deduct these sums before you make payments into your employees’ bank accounts and then send the deductions to Inland Revenue (IRD), either once or twice a month, depending on the size of your business.
Tax rates can change every year (and some do!) That’s not something you want to find out at the end of the year, so keep updated with the latest payroll tax changes.
When you pay the wrong rate, you must make up the difference in owed taxes. You might also have to pay late fees, penalties or interest on the taxes you owe.
End of the tax year looming? Get prepped and file on time with our handy checklists:
Incorrect pay can be frustrating for any employee, particularly if the error results in missed payments. Tracking your team’s time on the job is important, whether you charge a set fee or an hourly rate. You need to keep an accurate record of time spent on the tools so you can not only invoice for the correct amount, but also pay your employees accurately for their work.
Tradify’s timesheet software allows you to create and submit digital timesheets and use the live job timer to record hours. It’ll save you chasing those pesky timesheets every month, while at the same time lodging accurate employee records.
Are you charging enough? Work out your ideal hourly rate with our free Charge-Out Rate Calculator!
In our latest Tradify Pulse Report, a survey of more than 600 trade business owners across Australia, New Zealand and the UK, 34% of tradespeople are still using pen and paper to get their admin done.
That translates to a massive 18.5 hours per week on average spent on business admin, a number that can be significantly reduced using cloud-based technologies. There are several payroll software providers that can integrate directly with your cloud accounting software, further streamlining the process of paying staff.
For example, our accounting partner Xero has its own solution called Xero Payroll.
Our accounting partners by region:
Payroll mistakes can create drama you can do without. The best way to avoid any slip-ups is to follow a logical process that helps you tick off all the necessary steps. Even with software to support payroll processes, there are still a lot of jobs to track. Sticking to a process will not only save time and minimise mistakes, it’ll also make things easier when you take on your next staff member.
Here are some things to consider:
Often, it’s at this point that trade business owners might choose to work with an accountant, because of the complexities involved with payroll.
Find an expert or advisor today with Tradify!
There is no shortage of things to think about when it comes to payroll, but if you make use of the tools available, get some professional help when needed and stick to a regular process, you can minimise the level of effort required – and free yourself to focus on running the business.
Get your admin sorted and start experiencing the benefits of an organised business. Sign up for a 14-day free trial with Tradify. No credit card required. No commitment. Or pop over to one of our live demo webinars to see Tradify in action.
This article is not intended to be financial advice. Please discuss your individual financial situation with your registered financial advisor, bookkeeper, or accountant.