Setting up payroll for a new Australian company
Reviewed by Mellow Editorial Team, HR & payroll content team
Setting up payroll for the first time in Australia involves registering with the ATO, configuring your systems to withhold the right amounts, and reporting every pay event through Single Touch Payroll. Get each step right before your first pay run, and ongoing compliance becomes straightforward.
Register as a PAYG withholder
Before you pay anyone, you need to register your business to withhold tax. This is done through the ATO's Business Portal (or via your tax agent) by registering for a PAYG withholding obligation. You will already have an ABN; this step adds the withholding role to that entity.
Once registered, you are legally required to withhold income tax from every employee's gross pay at each pay event and remit it to the ATO on a scheduled basis — monthly or quarterly depending on your expected withholding volume. Get this registration in place before you make any payments, not after.
Understand what you must deduct from each pay
Australian income tax is progressive and withheld through the PAYG system. The ATO's tax withheld calculators and tax tables tell you exactly how much to withhold for each employee based on their annual equivalent earnings. Employees tell you their circumstances — residency status, tax offsets they want to claim, and whether they have a HECS/HELP debt — by completing a Tax File Number (TFN) declaration and a Withholding declaration at the start of employment.
Three things commonly need to come out of a pay:
Income tax (PAYG withholding). Applied progressively using the ATO's published weekly or fortnightly tax tables. If an employee has not provided a TFN, you must withhold at the top marginal rate.
Medicare levy. The standard Medicare levy is 2% of taxable income. For most employees this is already built into the ATO's withholding tables, so there is no separate calculation required — it comes out as part of normal PAYG withholding.
HECS/HELP repayments. If an employee tells you they have a study debt, you withhold an additional amount on a banded scale set by the ATO. This is based on their annual income estimate and is calculated on top of standard income tax withholding. The employee nominates this on their Withholding declaration; you are not expected to verify whether the debt still exists.
Set up Superannuation Guarantee contributions
Super is not deducted from the employee's take-home pay — it is an additional cost on top of gross wages. From 2026, the Superannuation Guarantee rate is 12% of ordinary time earnings. You must pay this to a complying superannuation fund by the quarterly due dates (28 October, 28 January, 28 April, and 28 June for the June quarter).
At the start of employment, give each employee a Standard Choice Form. This lets them nominate their preferred fund. If they do not nominate, you must pay into their stapled super fund — the ATO can look this up for you via the employer portal. If no stapled fund exists, you pay into your default fund.
Missing a super payment, or paying it late, triggers the Superannuation Guarantee Charge — a penalty that is not tax-deductible and adds interest and an administration levy on top of the unpaid amount.
Connect to Single Touch Payroll
Single Touch Payroll (STP) is the ATO's real-time reporting framework. Every time you run a pay event, your payroll software must send a report to the ATO containing each employee's year-to-date gross earnings, tax withheld, and super liability. This happens at or before the time of payment, not at the end of the month.
You need to use STP-enabled payroll software to do this. The ATO maintains a list of compliant products. Choose software that handles STP Phase 2, which is now the current standard and requires a more granular breakdown of pay components (base salary, leave, bonuses, etc.) compared to the original phase.
At the end of each financial year, you must finalise each employee's STP data by 14 July. Once finalised, the ATO pre-fills employees' tax returns automatically — which is why accuracy throughout the year matters.
Know your obligations under the National Employment Standards
The National Employment Standards (NES) set the minimum entitlements that sit beneath every modern award or enterprise agreement. Regardless of what your employment contract says, you must provide at least four weeks of paid annual leave per year for full-time employees, and you must follow a legislated redundancy-pay scale based on years of service if you ever need to let someone go.
These entitlements accrue from day one of employment. Your payroll system should track leave balances in real time so that accrued leave is always visible, both to you and to the employee. When an employee leaves, any unused annual leave must be paid out at the final pay run, including any applicable leave loading if that applies under their award.
Getting payroll right from the start also means checking whether a modern award covers your industry or occupation, since awards specify minimum pay rates, penalty rates, and allowances that sit on top of the NES baseline.
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