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Understanding payroll: How does it work?

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Payroll is a function that we all benefit from weekly, fortnightly or monthly – but can we honestly say we know how it actually works? If you aren’t part of the finance function or a business owner, you probably don’t have a great understanding of payroll. In the spirit of transparency and broadening your business acumen, let’s better understand payroll and how it works so you can improve your procedures or know what to look for in a payroll service company.


When we earn an income, we have to pay income tax. Income tax is a part of the revenue that governments use to fund infrastructure, health and many other systems. Exactly how much you pay and how it’s handled is a very complicated story. That is where payroll services come in. Payroll uses technology, the information provided from the tax office, and software to automatically deduct tax from your pay. This automatic deduction is crucial to how payroll teams process your tax and ensure you are compliant at the end of the financial year. Payroll teams have a very good grasp of taxation, including income tax and other forms such as higher education debts or fringe tax benefits, if you’re so lucky. Tax is complicated, but payroll teams make it a lot simpler by acting as a gateway between your pay and the tax office.


Payroll services are an integral part of our nest egg for retirement. Your payroll team is responsible for ensuring that your included superannuation contribution makes it to your selected provider. Payroll teams will also be able to provide information on funds if you aren’t sure who to go with. Superannuation can be tricky to understand, especially when you get into the nitty-gritty of which funds are investing in areas of higher risk. Payroll professionals are great at providing information, setting up and ensuring your contributions get to where they are supposed to be. Making additional contributions through deductions from your pay is also a job your payroll team can handle for you, so don’t be shy in asking them about this function.

Remittance advice

The payroll team at your workplace is also responsible for providing you with remittance advice following every pay cycle. This is commonly referred to as your payslip. This payslip has crucial information such as your leave balances, both sick and annual, as well as the amount of tax you paid and superannuation you have contributed. If you ever have a query about your pay, this is the first place to start. Payslips provided by payroll generally have any deductions or additions mentioned. Once you have that evidence you can reach out to your payroll team. Payroll teams will also provide your end of year tax summary for your tax return. This will likely be automatically provided to the tax office, but if you want a copy, your payroll team is the way to access it.


If you ever find yourself facing a payroll discrepancy or a question over your pay, tax, superannuation or leave, then payroll is the best team to help. Payroll teams are responsible for keeping accurate and longstanding records. These records include any changes you’ve made to personal details, your payment history and your role changes in the business. This information can be useful if you ever need evidence for a dispute or claim. Payroll will maintain these records for as long as the organisation deems necessary, which is usually many years. Accessing your records should be a fairly straightforward process with your payroll team.

Payroll is an integral function of any business. Their function is crucial for keeping records, ensuring employees are paid on time and that all tax and superannuation contributions are made. To get a better grasp of how payroll works, read this guide or approach your payroll team directly.

augusta free press
augusta free press