HR and payroll for non-profit in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Non-profits in Australia operate under the same core payroll obligations as any other employer — PAYG withholding, superannuation, Single Touch Payroll reporting — but with a layer of sector-specific rules around tax concessions, salary packaging and workforce mix that makes getting payroll right more complex than it first appears.
Tax concessions and what they mean for payroll
Not all non-profits are equal under Australian tax law. Depending on your organisation's structure and endorsement status, you may qualify for fringe benefits tax (FBT) concessions that directly affect how you pay staff.
Public benevolent institutions (PBIs) and health promotion charities endorsed by the ATO can offer employees a capped amount of salary packaging that is exempt from FBT. The practical effect is that employees can sacrifice some of their pre-tax salary toward expenses like mortgage repayments, rent or credit card bills, reducing their taxable income without triggering the FBT liability that would apply in a commercial employer's hands.
Before you build salary packaging into your payroll setup, confirm your organisation's ATO endorsement status and the applicable FBT exemption cap. Running packaging arrangements without that confirmation creates a real liability risk.
Salary packaging in practice
Salary packaging (also called salary sacrifice) is a significant recruitment and retention tool for non-profits precisely because it lets you offer higher effective pay without increasing gross cost. But it introduces payroll complexity.
A few things to get right:
Grossed-up reporting. Reportable fringe benefits amounts must be shown on each employee's income statement through Single Touch Payroll, even though they are not taxable income. Employees need this figure because it affects income tests for Medicare levy surcharge, HECS/HELP repayments, government benefits and childcare subsidies.
HECS/HELP withholding. If an employee has a study debt, their repayment rate is calculated on their income for repayment purposes — which includes reportable fringe benefits. Your payroll system needs to account for this when calculating the correct withholding on a banded scale, otherwise employees can end up with unexpected tax debts at year end.
Super on packaged amounts. Salary sacrifice reduces an employee's ordinary time earnings for some calculations but not others. Superannuation Guarantee — which sits at 12% of ordinary time earnings from 2026 — must still be paid on the base earnings before sacrifice unless the employee's contract explicitly reduces their ordinary time earnings. Take advice on how your employment contracts are drafted before assuming sacrifice reduces your super liability.
Managing a mixed workforce
Many non-profits rely on a combination of full-time employees, part-time staff, casuals and volunteers. Each category carries different obligations.
Employees — regardless of hours — accrue entitlements under the National Employment Standards, including four weeks' annual leave for full-time and pro-rata entitlements for part-time workers. Casual employees are engaged differently and do not accrue leave in the same way, but casual conversion rights apply under the NES, so regular casuals may have a right to request permanent employment after a qualifying period.
Volunteers are not employees and receive no pay, so PAYG and super do not apply. The boundary matters legally. If you reimburse volunteers for genuine out-of-pocket expenses, that is fine. If you pay them a regular stipend that looks like a wage, the ATO and Fair Work Australia may treat them as employees. Document the nature of each engagement clearly.
Award coverage is also worth checking carefully. Non-profit workers are often covered by the Social, Community, Home Care and Disability Services Industry Award (SCHCADS), which has its own pay scales, allowances and penalty rate structure. Underpayment risk in this sector is real.
Single Touch Payroll and year-end obligations
Non-profits report payroll to the ATO through Single Touch Payroll at each pay event — the same as any other employer. Each time you run a pay run, tax withheld, gross wages and super liability are reported in real time.
At year end, you must finalise your STP data by 14 July. This replaces the old payment summary process. Once you finalise, employees can access their income statement through myGov. If you have reportable fringe benefits amounts to include, they must be on the income statement before employees can lodge their tax returns — so late finalisation creates downstream problems for staff.
If your organisation also lodges an FBT return (covering the FBT year ending 31 March), make sure your payroll and finance teams are coordinated. The FBT return and the STP finalisation sit on different year-end timetables and different ATO lodgement portals.
Redundancy and leave when funding ends
Project-based funding is common in the sector, and that creates a specific HR challenge: employees whose roles are funded by a grant that ends may face genuine redundancy. The NES redundancy pay scale applies based on years of continuous service. Small business employers (fewer than 15 employees) are exempt from the NES redundancy scale, but must still provide notice.
Annual leave and long service leave balances must be paid out on termination. Long service leave entitlements vary by state and territory, so check the legislation applicable to where each employee works — not just where your organisation is incorporated.
---
Run HR and payroll in Australia with Mellow
Mellow brings HR, payroll and 12 AI agents into one platform — built to handle Australia properly, with payroll included, from £4 per employee per month. The AI agents don't just answer questions; they generate contracts, run cost estimates and draft letters for you.
[Start a free trial →](/register)