Chapter 6

Run payroll for your employees

Paying your employees right is essential. It’s also a legal requirement. Let’s take a look at the payroll process.

a person's hands holding a tablet with employee payrolll displayed

First, what is payroll?

Payroll is a list of your employees and the total amount of money you pay them. It includes salaries or wages, bonuses, allowances, and benefits. Deductions such as tax are also part of payroll.

Three ways to run payroll for employees

1. Spreadsheets or pen and paper: These methods are free, but they’ll cost a lot of time as you hire more people. Check that your local government agencies will accept these documents for tax reporting – as some won’t.

2. Outsource to a specialist: Professionals know the ins and outs of deductions and will help keep you onside with the tax office. But of course they cost more money, and you’ll need to communicate regularly about employee changes.

3. Online payroll software: Software packages can work out pay and deductions for each employee, then create payslips, and reports for tax authorities.

How to run payroll – from start to finish

Use this flowchart to see how to keep your business transactions separate from your payroll transactions and hold funds for taxes, deductions, and other payroll-related items.

A flowchart on how to run payroll for employees

After running payroll

  • Send a report to the tax office saying what you paid your employees and what you deducted from that pay
  • Ensure all deductions, including taxes, go to their rightful places
  • Keep a secure record of the pay run for at least seven years, even if your employee has left

How to keep all the money straight

Employers handle a lot of cash on behalf of their employees and the tax office. It’s a good idea to have a separate bank account for this. A payroll account will mean you’re less likely to spend someone else’s tax or retirement money accidentally.

Handy payroll website

You can also check out the IRD page on paying employees.

Already have Xero Payroll? Get tips on how to use Xero Payroll.

Disclaimer: Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.

Guide to hiring

Hiring help can improve your business, and your lifestyle. But it’s a big process. Here’s what to do and when to do it.

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