Bookkeeping vs Payroll: Can a Bookkeeper Do Payroll?

I’ve often been asked about the differences between bookkeeping and payroll, and whether a bookkeeper can handle payroll tasks.

Let’s clear up some confusion right off the bat: yes, a bookkeeper can do payroll, but there are distinct differences between the two roles.

Here’s a simple breakdown to help you understand each one better.

Quick Summary

• Bookkeeping vs Payroll: Bookkeeping involves recording financial transactions, while payroll specifically deals with the processing of employee wages.
• Can a Bookkeeper Do Payroll? Yes, many bookkeepers are equipped to handle payroll.
• Differences: Bookkeeping provides a broader financial overview, whereas payroll focuses on employee compensation.
• Bookkeeper’s Tasks: Include managing financial transactions, producing financial statements, and reconciling bank statements.
• Payroll Expert’s Tasks: Involve calculating wages, withholding taxes, and ensuring compliance with employment laws.

Can a Bookkeeper Do Payroll?

The straightforward answer is yes, a bookkeeper can indeed manage payroll functions.

However, it’s important to understand the nuances of this capability and what it entails for a business.

Here’s a more detailed exploration:

Skills and Knowledge Requirements

To effectively handle payroll, a bookkeeper must possess a certain set of skills and knowledge, including:

• Understanding of Payroll Legislation: Knowledge of the current tax laws, employment regulations, and compliance requirements is crucial. This includes staying updated on changes to minimum wage laws, superannuation contributions, and tax withholding rates.
• Attention to Detail: Payroll requires meticulous attention to ensure accurate calculation of wages, deductions, and tax withholdings for each employee.
• Confidentiality: Handling payroll involves dealing with sensitive employee information, which requires a high level of trust and integrity to maintain confidentiality.

Training and Software

• Payroll Software Proficiency: Many bookkeepers are proficient in using payroll software, which simplifies the payroll process. These systems can automate many aspects of payroll, from calculating pay and deductions to generating pay slips and reports.
• Additional Training: Some bookkeepers may pursue additional training or certifications in payroll management to enhance their expertise and ensure they can offer comprehensive payroll services.

Scope of Work

• Size and Complexity of the Business: In small to medium-sized businesses, a bookkeeper’s role often encompasses payroll duties due to the scale of the operation. However, as a business grows or if the payroll becomes more complex (e.g., dealing with multiple jurisdictions or intricate compensation structures), the need for a specialist payroll officer or an external payroll service may arise.
• Integrated Financial Management: When bookkeepers manage both the general ledger and payroll, it allows for a more integrated approach to financial management. This can lead to better cash flow management, more accurate financial reporting, and a holistic view of the business’s financial health.

Advantages of a Bookkeeper Doing Payroll

• Cost-Effectiveness: For small businesses, having a bookkeeper manage payroll can be more cost-effective than hiring a separate payroll specialist or outsourcing the service.
• Consistency: A bookkeeper who is already familiar with the business’s finances can ensure consistent record-keeping and financial management, including payroll.
• Simplified Communication: It simplifies communication when there’s a single point of contact for both bookkeeping and payroll queries within the business.

Bookkeeping vs Payroll

Although they overlap, bookkeeping and payroll serve unique functions in a business:

• Bookkeeping is about recording and managing all financial transactions, including sales, purchases, and payments.
• Payroll, on the other hand, specifically focuses on processing employee wages, withholding taxes, and complying with employment laws.

What Does a Bookkeeper Do?

As a bookkeeper, my role is to ensure the financial health of a business by accurately recording and managing financial transactions. Here are some standard tasks I handle:

• Recording Transactions: Daily transactions, including sales, purchases, receipts, and payments, are meticulously recorded. This involves categorising each transaction in the correct ledger to maintain organised financial records.
• Financial Statements: I prepare crucial financial statements like the balance sheet, income statement, and cash flow statement. These documents offer insights into the financial status of the business, helping stakeholders make informed decisions.
• Bank Reconciliation: Regularly, I compare the company’s recorded transactions against the bank statements to identify and rectify any discrepancies. This process ensures the accuracy of financial records and helps in detecting any unusual or fraudulent activity.
• Accounts Receivable and Payable: Managing incoming and outgoing payments is key. This includes invoicing clients, tracking outstanding receivables, and ensuring bills and supplier invoices are paid on time to maintain good relationships and credit terms.
• Budgeting and Forecasting: Assisting in the creation of budgets and forecasts allows the business to plan for future expenses and revenues. Monitoring financial performance against these budgets helps in identifying variances and making necessary adjustments.
• Tax Preparation: Preparing and organising financial records to streamline the tax filing process. While I may not file taxes, ensuring that all financial information is accurate and readily available for tax professionals is part of my role.

What Does a Payroll Expert Do?

A payroll expert specialises in everything related to paying employees.

This includes a range of tasks specifically focused on compensation and compliance, such as:

• Calculating Pay: Beyond just determining the wages based on hours worked, this includes accounting for bonuses, commissions, and other forms of compensation. It also involves managing deductions for benefits, such as health insurance or retirement contributions.
• Withholding Taxes: Correctly calculating and withholding federal, state, and local taxes, as well as any other deductions like social security and Medicare. This requires staying updated on tax rates and legislation changes.
• Compliance: Ensuring adherence to all employment laws and regulations is a critical part of the role. This includes understanding minimum wage laws, overtime regulations, and record-keeping requirements to avoid legal issues and penalties.
• Reporting and Payments: Submitting payroll taxes and necessary reports to government agencies on time. This includes end-of-year forms like W-2s or 1099s for employees and contractors.
• Employee Queries: Serving as the go-to person for employees’ payroll-related questions. This involves explaining pay stubs, tax deductions, and any changes in payroll calculations.
• Payroll Software Management: Utilising and maintaining payroll software to streamline the payroll process. This involves setting up new employees in the system, updating any changes in employee status, and ensuring the software is up-to-date with the latest tax rates and regulations.

FAQs

Can bookkeeping software handle payroll?

Yes, many bookkeeping software solutions offer integrated payroll services, simplifying both bookkeeping and payroll tasks.

Do I need a separate payroll expert if I already have a bookkeeper?

It depends on the complexity of your payroll and the expertise of your bookkeeper. For small businesses with straightforward payroll needs, a skilled bookkeeper might suffice.

Is it better to outsource payroll or keep it in-house?

This decision varies based on your business size, complexity of payroll, and whether you have qualified staff to handle it in-house. Outsourcing can be a convenient option for businesses without the expertise or resources to manage payroll internally.

How often should payroll be processed?

This is typically determined by company policy and employment agreements. Common frequencies include weekly, bi-weekly, semi-monthly, and monthly.

How much do bookkeepers charge?

In terms of how much bookkeepers charge, the answer is it depends on the size and scope of your business.

Our standard pricing ranges from $300-$1000 per month.

Conclusion

While they are interconnected in managing your business’s finances, recognising their differences helps in allocating resources more effectively and ensuring compliance with financial and legal obligations.

Whether handled by a dedicated professional or a versatile bookkeeper, both roles are vital for the smooth operation of a business’s financial health.

If you are in WA and are looking for help managing your books, get in touch with our bookkeepers in Perth to discuss a solution that will be suitable for you and your business.