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Chapter 6 of 8

Run payroll for your employees

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Small business guides > Guide to hiring staff > Run payroll for your employees

Run payroll for your employees

Getting payroll right is essential. Paying your employees on time and at the agreed rate is important to maintaining a productive relationship. It’s also a legal requirement. Let’s take a look at the payroll process.

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.

Flowchart of the payroll process showing deductions and extra costs to employers

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 payroll employer responsibilities.

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


Chapter 7: Manage employee evaluations

Employees help you grow your business but they need your support too. Here’s how to do employee evaluations so you can get the best out of your team.

Read chapter 7

This guide is intended as general information only. Always check with a professional for advice.

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