Australian payroll explained for small businesses
Reviewed by Mellow Editorial Team, HR & payroll content team
Running payroll in Australia means calculating each employee's gross pay, withholding income tax via PAYG, contributing superannuation, and reporting every pay event to the ATO through Single Touch Payroll — all within tight statutory deadlines.
What you need before you process your first pay run
Before you pay anyone, you need a few things in place.
First, register for PAYG withholding with the ATO. This is separate from your ABN registration, though you can apply for both at the same time through the Australian Business Register.
Second, choose payroll software that is STP-enabled. Single Touch Payroll is mandatory for all employers, regardless of size. Every time you process a pay run, your software must transmit a report to the ATO automatically. There is no end-of-year payment summary to issue to employees; the ATO holds their income data in myGov.
Third, collect a Tax File Number declaration and a superannuation standard choice form from each new employee before their first payday. If an employee does not nominate a fund, you pay into your default fund or their stapled fund — the ATO's stapled fund service identifies the existing fund linked to that employee.
How PAYG withholding works
Income tax in Australia is progressive, meaning the rate increases as earnings increase. You do not pay this tax on the employee's behalf — you withhold it from their gross wages and remit it to the ATO on their behalf.
The amount to withhold depends on the employee's annual income bracket, their Tax File Number declaration (which records any tax offsets they are claiming), and whether they carry a HECS/HELP debt. Employees with a study debt have an additional repayment withheld on a banded scale on top of standard income tax withholding. This shows as a separate component in your payroll software.
The Medicare levy adds 2% of taxable income to the withholding calculation. This is already built into the ATO's withholding tables, so your software handles it automatically as long as you have entered the employee's details correctly.
Withholding amounts are generally remitted to the ATO monthly or quarterly, depending on your total annual withholding liability. The ATO assigns your reporting cycle when you register; you can check it through ATO Online Services.
Superannuation obligations
From 2026, the Superannuation Guarantee rate is 12% of ordinary time earnings. Ordinary time earnings means the wages paid for an employee's ordinary hours — it does not typically include overtime, though it does include most allowances and leave payments. When in doubt, check the ATO's definition of ordinary time earnings for your specific situation.
Super must be paid to a complying superannuation fund. A complying fund is one regulated under superannuation legislation — most retail, industry and corporate funds qualify. You cannot pay super into a personal bank account or any fund that does not meet the compliance criteria.
Super contributions are due quarterly at minimum: 28 days after the end of each quarter (28 October, 28 January, 28 April, 28 July). Many employers pay more frequently to avoid a large quarterly outlay, and some awards or enterprise agreements require more frequent payment — check the instrument that covers your employees.
Unpaid or late super attracts the Superannuation Guarantee Charge, which is more expensive than the original obligation because it is calculated on total salary and wages (not just ordinary time earnings) and includes interest and an administration charge. Paying on time is straightforwardly the cheaper path.
Single Touch Payroll reporting
STP requires you to report each pay event to the ATO on or before the day you pay your employees. The report includes gross wages, tax withheld, and super liability for each individual. Your STP-enabled software sends this automatically when you finalise the pay run.
At year end, you must submit an STP finalisation for each employee by 14 July. This is the signal to the ATO that the data is complete, which allows employees to lodge their tax returns. If you miss this date, employees may face delays with their returns, and the ATO may follow up with you.
There is no separate group certificate or payment summary process under STP. The finalisation replaces it entirely.
Annual leave and redundancy under the National Employment Standards
The National Employment Standards set a floor that applies to all national system employees regardless of what a contract says.
Annual leave accrues at 4 weeks per year of ordinary hours worked (shift workers may accrue more under their award). You must pay it out when an employee resigns or is terminated, so accrued leave is a liability that grows on your books throughout employment. Tracking it accurately in your payroll system from day one prevents surprises when someone leaves.
Redundancy pay follows a scale based on years of continuous service. The entitlement steps up at each year threshold. Small businesses with fewer than 15 employees are exempt from redundancy pay obligations under the NES, though this does not affect notice periods or leave entitlements on termination.
If an award or enterprise agreement provides a more generous entitlement than the NES, the better provision applies. Payroll compliance in Australia means knowing which instrument covers each role — and building those rules into your calculations from the start.
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