Australian HR and payroll: a starter guide
Reviewed by Mellow Editorial Team, HR & payroll content team
Australian payroll law is federal in structure but layered with awards, agreements and state-based entitlements. Get the foundations right and the system is manageable; miss a layer and you face underpayment liability that compounds quickly.
Employment classification comes first
Before you run a single payroll, confirm whether each worker is an employee or a contractor. The distinction matters because employees attract PAYG withholding, superannuation, leave entitlements and award coverage — contractors generally do not, though some contractor arrangements trigger super obligations regardless.
For employees, you also need to determine whether they are full-time, part-time or casual. Casuals attract a loading (typically 25%) in lieu of leave entitlements, but after a qualifying period they have the right to request conversion to permanent employment under the National Employment Standards (NES).
The National Employment Standards set your floor
The NES are the ten minimum entitlements that apply to all national system employees, regardless of what an award or contract says. For payroll purposes, the most operationally significant ones are:
- Annual leave: four weeks per year for full-time employees (pro-rated for part-time), accruing progressively. Shift workers may be entitled to five weeks.
- Redundancy pay: scaled by years of continuous service, starting at four weeks' pay for one to two years of service and rising from there. Small businesses (fewer than 15 employees) are exempt from redundancy pay in most cases.
- Notice periods: minimum notice on termination varies by length of service, with an additional week for employees over 45 who have completed at least two years.
An award or enterprise agreement can provide more than the NES, but never less. Always check which modern award covers each role — Fair Work's Award Finder is the practical starting point.
PAYG withholding, Medicare and study debts
Australia uses a pay-as-you-go (PAYG) withholding system. You deduct income tax from each pay, remit it to the ATO and report it through Single Touch Payroll (STP) at every pay event. Income tax is progressive, so the amount withheld depends on each employee's annualised earnings and the tax-free threshold status they declare on their Tax File Number declaration.
Two common add-ons sit alongside income tax:
Medicare levy: 2% of taxable income, withheld through payroll for most employees. Low-income earners may be exempt or have a reduced rate.
HECS/HELP repayments: employees with a study debt repay it through payroll on a banded scale set by the ATO each year. They declare the debt on their TFN declaration; you apply the relevant repayment rate on top of ordinary withholding. Failing to withhold the correct HELP amount leaves the employee with a tax debt at year-end — they will notice.
Superannuation Guarantee
From 2026, the Superannuation Guarantee (SG) rate is 12% of ordinary time earnings (OTE). You must pay this to a complying superannuation fund — either the employee's chosen fund or, if they do not nominate one, a stapled fund identified via the ATO, or your default fund as a last resort.
SG is not a payroll deduction — it is an employer contribution on top of the employee's gross pay. It is due at least quarterly, though many employers pay more frequently to stay on top of cash flow and reduce the risk of late payments. Late or unpaid super triggers the Superannuation Guarantee Charge, which is more expensive than the original liability because it is not tax-deductible and includes interest and an administration fee.
Ordinary time earnings excludes overtime, so SG is not payable on overtime wages — but verify this against any applicable award, as some awards treat overtime differently for SG purposes.
Single Touch Payroll reporting and year-end
STP is the mechanism by which payroll data flows directly to the ATO at each pay event. Every time you process pay, your payroll software submits a report containing gross wages, PAYG withholding and super liability for each employee. There is no separate group certificate process anymore.
At the end of the financial year, you must finalise each employee's income statement in STP by 14 July. This replaces the old payment summary. Once you mark an employee as finalised, their income statement becomes tax-ready in myGov and they can lodge their return.
If you have employees in multiple countries, understanding how Australian STP obligations interact with overseas payroll cycles matters — how Mellow runs payroll across six countries on one platform explains that coordination in practice.
Record-keeping obligations
Fair Work requires you to keep employment records for seven years. This includes pay records, hours worked, leave balances, super contributions and any individual flexibility arrangements. Records must be legible, in English and accessible to the Fair Work Ombudsman on request.
Payslips must be issued within one business day of each pay event. They need to show the employer's ABN, pay period, gross and net pay, any deductions, the ordinary hourly rate if the employee is paid by the hour, and super contributions made or accrued during the period.
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