Payroll for your first employee in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Taking on your first employee in Australia means registering as a PAYG withholder, setting up superannuation, and reporting every pay run through Single Touch Payroll. The steps are straightforward once you know the sequence.
Register as a PAYG withholder
Before you pay anyone, you need to register with the ATO to withhold tax. If you already have an ABN, you can add PAYG withholding through the Australian Business Register or your tax agent. If you do not have an ABN yet, get that first.
Once registered, you are obligated to withhold income tax from each pay, send those withheld amounts to the ATO, and report every pay event in real time through Single Touch Payroll.
Collect the right information from your employee
On or before their first day, ask your employee to complete a Tax File Number declaration. Without a TFN, you must withhold tax at the top marginal rate — so chase this early.
Also establish:
- Whether they have a HECS/HELP debt. If they do, you withhold an additional amount on top of standard income tax, calculated on a banded scale based on their annual income. The ATO's tax withheld calculator handles this arithmetic for you.
- Their nominated superannuation fund. Employees are entitled to choose their own complying fund. If they do not nominate one, you use their stapled super fund (requested from the ATO) or your default fund.
- Whether they qualify for the tax-free threshold claim.
Understand what you must withhold and pay
Every pay run has three components you need to manage.
Income tax (PAYG withholding). Australia uses a progressive income tax system. The amount you withhold depends on your employee's annual earnings, their tax-free threshold claim, and any HELP repayment obligation. Use the ATO's tax tables or payroll software to calculate the correct withholding for each pay frequency — weekly, fortnightly or monthly.
Medicare levy. Most employees have a 2% Medicare levy factored into the standard ATO tax tables. You do not calculate it separately; it is embedded in the withholding amounts when you apply the correct table.
Superannuation. From 2026, the Superannuation Guarantee rate is 12% of ordinary time earnings. You must pay this to a complying super fund. Super is paid on top of wages — it is not deducted from the employee's pay. You have until 28 days after the end of each quarter to make the payment, though many employers pay more frequently to stay on top of it.
A common mistake is assuming super only applies once you hit a certain earnings threshold. That threshold was abolished, so super applies from the first dollar earned.
Set up Single Touch Payroll reporting
Single Touch Payroll (STP) requires you to report each pay event to the ATO at the time you process payroll. This means the ATO sees your employee's gross wages, PAYG withholding and super information in real time.
You report through STP-enabled software — the ATO maintains a list of compliant products, including several low-cost options for businesses with just one or two employees. Once your software is connected, the report is sent automatically each payday.
At the end of the financial year, you finalise your STP data by 14 July. This replaces the old payment summary process. Once you mark the year as finalised, your employee can access their income statement through myGov to complete their tax return.
Know your obligations under the National Employment Standards
The National Employment Standards set the minimum entitlements for all employees covered by the national workplace relations system, regardless of what their contract says.
For a first employee, the two most immediately relevant entitlements are:
Annual leave. Full-time employees accrue four weeks of paid annual leave per year. Part-time employees accrue the same rate on a pro-rata basis. Leave accrues progressively and must be paid out on termination.
Redundancy pay. If you ever need to make the role redundant, the NES prescribes a pay scale based on years of continuous service. The scale starts at a minimum period of service and increases with tenure. Small business employers (fewer than 15 employees) are exempt from redundancy pay in most circumstances, but it is worth understanding the rules before you reach that point.
Award coverage is a separate layer on top of the NES. Most industries and occupations in Australia are covered by a Modern Award, which sets minimum pay rates, penalty rates and allowances. Check the Fair Work Commission's Pay and Conditions Tool to confirm whether an award applies to your employee's role before you agree on any pay rate.
Getting these fundamentals right from the start — registration, correct withholding, super at the right rate, STP reporting and NES compliance — means you avoid the penalties and back-payments that catch employers who set up payroll in a hurry.
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