A payroll set-up checklist for Australian employers
Reviewed by Mellow Editorial Team, HR & payroll content team
Getting payroll right in Australia requires registering for PAYG withholding, collecting tax file number declarations from employees, enrolling in Single Touch Payroll, and setting up superannuation contributions before you pay anyone. Miss any of these steps and you risk ATO penalties, underpaid entitlements and unhappy staff.
Register for PAYG withholding
Before you process a single pay run, you need to be registered as a withholder with the ATO. If you already have an Australian Business Number, you can add PAYG withholding through the ATO's Online Services for Business. Without this registration, you cannot legally withhold income tax from employee wages and remit it to the ATO.
Once registered, you are responsible for calculating the correct withholding amount for each employee at each pay event, using the ATO's tax withheld calculator or your payroll software's built-in rates. Income tax is progressive and collected through PAYG — meaning the more an employee earns, the higher the marginal rate applied.
Collect the right information from each new employee
Before or on their first day, every employee must complete a Tax File Number (TFN) declaration. This tells you their TFN, residency status, and whether they want to claim the tax-free threshold. Without a TFN declaration, you are required to withhold tax at the highest marginal rate — a situation no employee wants.
Also collect:
- Superannuation choice form — employees have the right to nominate their own complying super fund. If they do not nominate one, you pay into their stapled super fund (which the ATO identifies for you) or your default fund if no stapled fund exists.
- HECS/HELP repayment indicator — if an employee has a study debt, they repay it through payroll on a banded scale based on their income. Ask employees to declare this on their TFN declaration or through a separate withholding variation. Failing to withhold the correct study debt repayment amount creates a reconciliation problem at tax time for the employee.
- Medicare levy variation — most employees pay the 2% Medicare levy through PAYG withholding automatically, but some are eligible for a reduction or exemption.
Set up Single Touch Payroll
Single Touch Payroll (STP) is mandatory for all employers in Australia. Every time you process a pay run, your payroll software reports wages, tax withheld, and superannuation information directly to the ATO. There is no batched monthly or quarterly report — reporting happens at each pay event.
At the end of the financial year, you must finalise your STP data by 14 July. This is what allows your employees to lodge their personal tax returns with pre-filled income and tax figures. Late finalisation causes problems for employees waiting on their tax refunds and can attract ATO attention.
Choose a payroll platform that is STP Phase 2 compliant. Phase 2 requires more granular data — including income type, employment basis, and disaggregated gross — so your software needs to support it before you begin.
Set up superannuation correctly
From 2026, the Superannuation Guarantee rate is 12% of ordinary time earnings. You must pay this to each employee's complying super fund. A few things to get right from the start:
- Contribution frequency — super must be paid at least quarterly, but many employers pay more frequently to avoid a large lump sum and reduce the risk of missing a deadline. Missed or late payments trigger the Superannuation Guarantee Charge, which is not tax-deductible.
- Ordinary time earnings — this is the base for your calculation. It excludes overtime in most cases but includes most regular allowances. Check the ATO's guidance if you have complex pay structures.
- SuperStream — all super contributions must be made electronically through the SuperStream standard, which transmits both the payment and employee data to the fund in one transaction. Your payroll software or a super clearing house will handle this.
Confirm your award or enterprise agreement obligations
Before you finalise your pay rates, confirm which Modern Award or enterprise agreement covers each employee. Awards set minimum pay rates, penalty rates for weekends and public holidays, overtime rules, and allowances. The National Employment Standards establish the floor — including four weeks of annual leave for full-time employees and a redundancy pay scale based on years of service — but awards typically add further obligations on top.
Cross-reference your pay rates against the Fair Work Commission's Pay and Conditions Tool before your first pay run. Underpaying employees, even unintentionally, exposes you to back-payment obligations, penalties, and reputational damage. If you have contractors in your workforce, also assess whether any of them meet the ATO's definition of an employee for PAYG and super purposes — misclassification is a common and costly mistake.
Once these foundations are in place, your ongoing obligation is consistency: run payroll on time, report through STP at each event, pay super before deadlines, and keep records for at least seven years as required by the ATO.
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