The Basics Of Paying Payroll Tax

Posted by Cedric Joshua Martinez

Jul 28, 2016 12:30:00 PM


As an employer, payroll tax is as unavoidable as any others imposed on you by the government. While taxes are beneficial to society in general, it doesn’t have to be a burdensome task for actual taxpayers, and payroll tax is no exception. Here’s a quick and easy guide on the basics of payroll tax.

What is Payroll Tax?

Payroll tax comes in two forms: withholding tax and government program taxes. As the name implies, withholding tax is income withheld from your employees’ paychecks. This is a requirement for every employee, whether self-employed or regularised into a private institution. The latter is a bit more complicated, as it involves and influences a host of other factors that pertain to government programs in your country. This could include your medicare, social security, unemployment insurance, and other similar aspects, depending on which nation you call home.

What is a Look-Back Period?

A Look-Back period is a timeframe for two different activities depending on whether your business is starting out or has been operating for a while already. In the former, the look-back period is when you decide your company’s payroll schedule. This is important because every payroll schedule has its own advantages and disadvantages. However, the main point is that this also determines the schedule at which you are required to deposit taxes. This may differ from country to country.

Here’s an example that would make it easier to understand: In the United States, following a monthly payroll schedule requires you to deposit on the 15th of the next month. Therefore, your payroll in August must be filed and deposited by the 15th of August at the latest. On the other, a semi-weekly schedule follows a completely different approach. Here’s a chart to demonstrate how it works:

Payroll Dates

When you should deposit taxes

Saturday, Sunday, Monday, or Tuesday

The following Friday

Wednesday, Thursday, or Friday

The following Wednesday


As you can see, your schedule affects your payroll tax as well so keep that in mind while planning your business. The Look-Back Period’s second definition is the time where you ensure that you are following the right payroll schedule by depositing and filing on time.

The Payroll Process

Before you can process payrolls, there are a few preparations that need to be done. First, you need to understand and set a wage calculator, a system that makes sure that all of your calculations are correct and accurate. Every business calculates their payments differently, as different employees have different workloads and office cultures. Having one already set up means you don’t have to constantly scramble for the right calculations every payroll. The second is deciding who will be in charge of all the accounting tasks. You could either have an in-house team or outsource it. Either way, making it clear who needs to which tasks will save you a lot of confusion.

The process itself consists of 4 steps:

  1. Distribute pay to employees
  2. Set aside money for taxes
  3. Make a payroll register
  4. File tax payments and payroll reports

Each operates in a system that you can devise for maximum efficiency and minimal effort. There is no such thing as a perfect system, as there are many complexities in business that make this impossible. However, that does not mean that there isn’t a system that best fits your company.

Penalties of Untimely Deposits

Taxes may be unavoidable, but choosing to ignore them will make things much worse. You could be forced to pay 2-10% more - the penalty for not paying your taxes on time. Some countries add more penalties to this. You can even be accused of tax evasion and put behind bars for a lengthy amount of time. Avoid these nasty penalties by knowing the right tax schedule of your country and paying punctually.

This article can only give you a basic overview of payroll tax, as going into detail would be too complex for a single post. However, if you schedule a consultation with us, we can get down to the most minute details and make every aspect of payroll taxes clear to you. Contact us now and make payroll tax management a simpler task.

Download the Australian Payroll Management Whitepaper

Topics: Payroll Services

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