The true cost of hiring an employee in Australia
Reviewed by Mellow Editorial Team, HR & payroll content team
Hiring an employee in Australia costs significantly more than their base salary alone. Once you add superannuation, leave entitlements, payroll tax, workers' compensation and onboarding time, the true cost typically runs 20–30% above the salary you advertise.
What sits on top of the base salary
The most immediate add-on is the Superannuation Guarantee. From 2026, you must contribute 12% of an employee's ordinary time earnings into a complying superannuation fund. This is not optional and it is not deducted from the employee's pay — it is a cost you bear on top of the salary agreed in the contract.
If you offer an employee a $80,000 salary, your super obligation alone adds $9,600 per year to your cost.
You are also liable for payroll tax if your total Australian wages exceed your state or territory threshold. Each jurisdiction sets its own rate and threshold, so the figure varies depending on where your business operates. If you are close to or above the threshold, factor this in before you post a role.
Workers' compensation insurance is compulsory in every state and territory. Premiums are calculated as a percentage of your payroll and vary by industry and claims history. A desk-based worker in a low-risk industry will attract a lower premium than someone in construction or logistics.
Leave entitlements and what they actually cost
Under the National Employment Standards, full-time employees are entitled to four weeks of paid annual leave per year. When a team member takes leave, you are paying their salary without receiving their labour — and if you have to bring in temporary cover, you pay twice.
There is also paid personal leave (sick and carer's leave), compassionate leave, and parental leave entitlements to account for. Long service leave obligations vary by state but accumulate quietly in the background.
When an employee resigns or is made redundant, any accrued but untaken annual leave is paid out. Redundancy situations trigger an additional obligation: the NES redundancy pay scale is based on years of continuous service, with the payout increasing the longer the employee has been with you. Provisioning for these liabilities from day one is prudent — they can come as an unpleasant surprise if left untracked.
Payroll administration and compliance obligations
Running payroll in Australia involves more than calculating a salary and transferring funds. You must:
- Withhold PAYG tax at the correct marginal rate. Income tax is progressive, so the amount withheld depends on the employee's earnings, residency status and any tax offsets they have claimed on their Tax File Number declaration.
- Apply the Medicare levy — currently 2% of taxable income — as part of the PAYG withholding calculation.
- Check for HECS/HELP repayment obligations. If an employee has a study debt, you must withhold additional amounts based on their income using the ATO's banded repayment scale. Employees do not always flag this upfront, so the Tax File Number declaration form is important.
- Report every pay event through Single Touch Payroll (STP). STP reporting is mandatory and must happen at or before each pay event. At the end of the financial year, you must finalise payroll data through STP by 14 July so employees can lodge their tax returns.
Mistakes in PAYG withholding or super payments attract ATO scrutiny and can result in penalties and interest. Superannuation must be paid by the quarterly due dates; late super payments are subject to the Superannuation Guarantee Charge, which is more expensive than paying on time.
Indirect and one-off costs employers overlook
Beyond the recurring obligations, there are real costs in getting someone started:
- Recruitment — advertising, recruiter fees if used, and the internal time spent shortlisting and interviewing candidates.
- Onboarding and training — a new hire is rarely fully productive in their first weeks. The time your existing team spends bringing them up to speed has a dollar value.
- Equipment and software licences — laptops, phones, tools and any seat-based subscriptions all add to the first-year cost.
- Payroll setup — adding a new employee to your payroll system, collecting their TFN and super fund details, and issuing a compliant employment contract each takes time.
If the hire does not work out and you need to go through a performance or termination process, the time and legal costs involved can be substantial.
How to build a realistic employment budget
A straightforward way to estimate total cost is to take the base salary, add 12% for super, estimate your workers' compensation premium (typically 1–5% of wages depending on industry), and set aside a buffer for leave accruals and payroll tax if applicable. For a $80,000 salary role, a realistic all-in cost lands somewhere between $95,000 and $105,000 before any recruitment or equipment spend.
If you are considering a contractor arrangement instead, the numbers look different — but so do the rules. The ATO applies specific tests to determine whether someone is genuinely a contractor or a deemed employee, and misclassification carries its own penalties. Understanding how Mellow runs payroll across six countries on one platform can help if you are also managing workers outside Australia.
Building these figures into your budget before you make an offer means no surprises once the employment relationship begins.
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