How to Do Payroll for Your Small Business in Australia

Key takeaways

• Running payroll in Australia means calculating gross pay, withholding Pay As You Go (PAYG) tax, paying superannuation, and reporting through Single Touch Payroll (STP)

• From 1 July 2026, Payday Super requires super payments within seven business days of payday, replacing the quarterly deadline

• The right payroll software connects your rostering and time tracking to pay runs, helping reduce errors and supporting your compliance workflows

• Accurate time records form the foundation of correct pay, so investing in a reliable system from day one saves you time and money
  

Why getting payroll right matters for your small business

If you're running a small business in Australia with hourly staff, payroll isn't just admin. It's one of the highest-risk areas of your operation. Payroll errors can expose businesses to regulatory action, underpayment claims, and other financial consequences, depending on the circumstances.

The Fair Work Ombudsman recovered $358 million in underpayments in the 2024-25 financial year alone in underpayments for Australian workers in recent years. Many of those cases involved small businesses that made honest mistakes with Award rates, penalty calculations, or super payments.

The good news? With the right processes and tools in place, payroll is manageable. This guide walks you through everything you need to know about how to do payroll for your small business in Australia, from initial setup to ongoing compliance.

What you need before you start running payroll

Before you process your first pay run, you need to get your foundations right. Skipping these steps creates problems down the track that are much harder to fix. Think of this as your payroll setup checklist.

Register your business with the ATO

You need three things in place before you can pay anyone:

• An Australian Business Number (ABN)

• PAYG withholding registration with the ATO

• STP registration so you can report payroll information to the ATO each pay cycle

You can register for all of these through the ATO's online services or your tax agent. Don't skip PAYG registration. If you pay employees without withholding tax, you'll owe the ATO the full amount plus potential penalties.

Classify your workers correctly

One of the most expensive payroll mistakes is treating an employee as a contractor (or vice versa). The ATO and Fair Work look at how the work is done, not what you call the arrangement.

If you control when, where, and how someone works, they're likely an employee. Key indicators include whether the worker can delegate or subcontract, whether they provide their own tools, and whether they bear financial risk for the work.

Misclassification can trigger back-payment of super, PAYG, leave entitlements, and penalties on top. If you're unsure about a worker's status, seek advice from a qualified employment lawyer or accountant before engaging them.

Choose your pay cycle

Australian businesses typically pay staff weekly, fortnightly, or monthly. Your Modern Award may dictate the maximum gap between pay days. For example, most Awards require you to pay employees at least monthly.

Fortnightly is the most common choice for hourly teams. It balances cash flow with your employees' need for regular income. Keep in mind that with Payday Super starting in July 2026, your pay frequency also determines how often you'll need to process super payments.

Whatever cycle you choose, consistency matters. Set your pay day and stick to it so your team knows exactly when to expect their wages.

Set up your payment method

Most Australian businesses pay employees via electronic funds transfer (EFT) directly into their nominated bank accounts. You'll need a business bank account that supports batch payments if you have more than a few staff.

For superannuation, you'll need either a clearing house service or direct fund payment method. A clearing house lets you send one payment that gets split across multiple super funds. This is particularly helpful when your employees are spread across different funds.

Choose a time tracking system

Accurate time records are the backbone of correct payroll. If your timesheets are wrong, your pay will be wrong. It's that simple.

A time tracking system that connects directly to your payroll process removes manual data entry and reduces the risk of transcription errors. When staff clock in and out through an app, you get accurate start and finish times without relying on handwritten timesheets or memory.

Deputy's timesheet feature, for example, captures clock-in and clock-out times, applies configured pay rules for manager review, and exports approved hours directly to your payroll software.

Each pay cycle with the previous system, I was spending around two hours to three hours to do payroll and now with Deputy, it took me 45 minutes.

Mari Bornelli, General Manager, Funk Drinks Co.

Understand your tax and super obligations

Before you run your first pay, make sure you've collected a Tax File Number (TFN) declaration from each employee. This tells you how much PAYG tax to withhold.

You also need to understand your Payday Super obligations. The current rate is 12% of each employee's ordinary time earnings, with no minimum earnings threshold. You pay super on top of wages, not deducted from them. This applies to full-time, part-time, and casual employees regardless of how much they earn.

How to run payroll step by step

Once your setup is complete, here's how to actually process a pay run for your hourly team. You'll repeat these steps every pay cycle, so building a streamlined workflow from the start saves you hours over time.

Collect employee information

For each new starter, you need:

• A completed TFN declaration form

• A superannuation choice form (or use your default fund)

• Their bank account details for EFT payments

• The correct Modern Award and classification for their role

Getting the Award classification right from day one prevents underpayment issues later. Check the Fair Work website if you're unsure which Award applies. Many small businesses fall under the General Retail Industry Award, the Hospitality Industry (General) Award, or the Clerks Award, depending on the type of work performed.

Calculate gross pay

For hourly employees, gross pay equals hours worked multiplied by the applicable rate. This sounds simple, but it gets complex quickly when you factor in penalty rates for weekends and public holidays, overtime, shift loadings, and allowances.

For example, a casual hospitality worker who does a Sunday shift might earn their base rate plus a 50% casual loading plus a 50% Sunday penalty rate. Getting these calculations right every pay run requires accurate time records and up-to-date rate information.

Deputy timesheets capture the actual hours your team works and can apply configured Award rates based on the time of day, day of week, and employment type. This gives you a starting point for manager review before you finalise your pay run.

Apply deductions and withholdings

From each employee's gross pay, you need to withhold:

• PAYG tax (based on ATO tax tables and the employee's TFN declaration)

• Higher Education Loan Program (HELP) repayments, if applicable

• Child support deductions, if notified by Services Australia

• Any voluntary salary sacrifice arrangements

Remember, super is not deducted from the employee's pay. You pay it on top of their gross wages, directly to their super fund.

Process the pay run

Once you've calculated net pay (gross pay minus deductions), you transfer the funds to each employee's bank account. You also need to generate and provide a payslip within one business day of payment.

Payslips are a legal requirement under the Fair Work Act. Each payslip needs to show:

• Gross and net pay amounts

• All deductions itemised (PAYG, super, HELP, salary sacrifice)

• The pay period start and end dates

• Hours worked (for hourly employees)

• The applicable pay rate or rates

Most payroll software can generate payslips designed to support Fair Work recordkeeping requirements and distributes them to employees via email or through a self-service portal.

Report through Single Touch Payroll

Single Touch Payroll means you report your employees' tax and super information to the ATO each time you run payroll. STP-enabled software handles this automatically as part of your pay run.

STP replaced the old system of annual payment summaries. Your employees can now see their year-to-date tax and super information through myGov at any time. This also means you no longer need to issue payment summaries at the end of the financial year, saving you time each July.

Understanding payroll deductions in Australia

Understanding what comes out of each pay packet (and what you pay on top) helps you budget accurately and avoid surprises at tax time. Here's a breakdown of the main deductions you'll encounter when running payroll in Australia.

PAYG withholding

PAYG withholding is the tax you hold back from your employees' pay on behalf of the ATO. The amount depends on how much the employee earns, their residency status, and what they declared on their TFN form (including any tax-free threshold claims or HELP debt).

You calculate PAYG using the ATO's tax tables, which provide lookup amounts based on earnings. You then remit the total withheld amount to the ATO, either quarterly (for businesses that withhold less than $25,000 per year) or monthly.

If an employee doesn't provide a TFN declaration, you withhold at the top marginal rate of 47% (including Medicare levy) from their very first pay. This makes collecting TFN forms before the first shift a priority.

Superannuation contributions

From 1 July 2026, under the Payday Super reforms, you'll need to pay super within seven business days of each payday. The Small Business Superannuation Clearing House (SBSCH) will close on 30 June 2026, so you'll need an alternative clearing house arrangement in place before then.

Other deductions

Beyond PAYG and super, you may need to manage:

• HELP (formerly HECS) loan repayments for employees earning above the threshold

• Child support payments as directed by Services Australia

• Salary sacrifice arrangements (for additional super, novated leases, or other pre-tax benefits)

Preparing for Payday Super

The shift from quarterly to payday-aligned super is one of the biggest payroll processing changes in years. Here's what you need to know.

From 1 July 2026, you'll need to pay super within seven business days of each payday. If you pay your team fortnightly, that means 26 super payments per year instead of four. Weekly payroll means 52 transactions.

The cash flow impact is significant for small businesses. Instead of holding super for up to three months, you'll need funds available within days of each pay run. For a business with 10 employees on fortnightly pay, that's a big shift in how you manage working capital.

Start planning now by:

• Auditing your current payroll systems and super payment processes

• Arranging an alternative clearing house (the SBSCH closes 30 June 2026)

• Checking that your payroll software supports frequent super payments

• Adjusting your cash flow forecasts to account for more regular outflows

• Talking to your accountant about the transition

Common payroll mistakes to avoid

Even well-meaning small business owners make payroll errors that cost them time and money. Knowing what to watch for helps you build processes that catch issues early. Here are the most common mistakes:

• Misclassifying workers as contractors when they should be employees, triggering back-payments and penalties

• Applying wrong Award rates, particularly for penalty rates, casual loading, and overtime

• Missing super deadlines, which triggers the Super Guarantee Charge (SGC) consisting of the unpaid amount plus interest and an administration fee per employee per quarter

• Poor record-keeping (you need to keep payroll records for seven years under the Fair Work Act)

• Not staying up to date with regulation changes, including annual Award rate increases and legislative reforms like Payday Super

Choosing the right payroll system

You have three main options for managing payroll. The right choice depends on your team size, the complexity of your Award coverage, and your budget. Here's how they compare.

Manual payroll

This means spreadsheets, manual calculations, and paper records. It's only realistic if you have one or two employees with straightforward pay arrangements. Even then, it's time-consuming and carries a high risk of errors.

With manual payroll, you're responsible for looking up tax tables, calculating penalty rates by hand, tracking leave balances, and manually preparing STP reports. For most small businesses, the time cost alone makes this impractical.

Outsourcing to a bookkeeper or accountant

Hiring a payroll professional gives you expertise, particularly for complex Award structures or multi-state operations. They handle the calculations, lodgements, and reporting on your behalf.

The downside is cost (often $50 or more per employee per month) and less visibility into your own payroll data between pay runs. You also still need accurate time records to provide them, so you don't eliminate the need for good time tracking.

Payroll software

For most small businesses, payroll software is the most cost-effective option. Good payroll software automates PAYG calculations, handles STP reporting, and integrates with your time tracking system so hours flow directly into pay runs.

Look for software that supports the features you'll need as regulations change. For example, with Payday Super starting in July 2026, you'll want a system that can handle frequent super payments without adding manual steps to each pay cycle.

The key is choosing software that connects to how your team actually works. When your rostering, timesheets, and payroll talk to each other, you spend less time on manual data entry and reduce the chance of errors.

How to stay on top of payroll compliance

Payroll rules change regularly in Australia. Annual Award rate increases, super rate changes, and new legislation like Payday Super mean you can't just set and forget your payroll processes.

Building good habits now helps you avoid costly surprises later. Here's how to stay current:

• Keep payroll records for seven years as required under the Fair Work Act

• Review Award rates every July when the annual minimum wage increase takes effect

• Use STP-enabled software so your ATO reporting happens with each pay run

• Reconcile payroll regularly to catch errors before they compound

• Watch for regulatory changes and build lead time into your preparation (for example, start preparing for Payday Super now)

• Subscribe to ATO and Fair Work updates so you hear about changes as they're announced

Payroll isn't a once-a-year activity. Building these habits into your regular operations means you catch issues early, before they become expensive problems.

Create a seamless payroll system

Payroll works best when it isn't isolated from the rest of your workforce operations. When your rostering, time tracking, and payroll systems connect, data flows smoothly from shift to timesheet to pay run without manual re-entry.

The biggest payroll headaches come from disconnected systems: re-keying hours from paper timesheets, cross-referencing rosters against attendance records, and manually calculating penalty rates. Each handoff introduces the risk of errors.

Deputy brings rostering, time tracking, and payroll together in one platform. Your team clocks in and out, their hours feed into timesheets with configured Award rates applied for manager review, and approved timesheets export directly to your payroll software. That means less admin, fewer errors, and more time to focus on running your business.

Try Deputy for free and see how connected workforce management can help streamline your payroll workflows.

Frequently asked questions

How do I do payroll for the first time in Australia?

Start by registering for an ABN and PAYG withholding with the ATO. Then collect TFN declarations and super choice forms from your employees, identify the correct Modern Award for each role, and choose STP-enabled payroll software. Deputy connects your time tracking to payroll, so hours flow directly into pay runs without manual re-entry.

What are the penalties for incorrect payroll in Australia?

The Fair Work Ombudsman can seek court-ordered penalties for underpayment of wages, with maximum civil penalties of up to $18,780 per contravention for individuals and $93,900 for small business companies (higher for larger employers and serious contraventions). The ATO can also penalise you for late or incorrect PAYG and super payments. Missing super deadlines triggers the Super Guarantee Charge (SGC), which adds interest and administration charges on top of the unpaid amount.

How can payroll software help my small business?

Payroll software automates tax calculations, generates payslips, handles STP reporting, and integrates with time tracking systems. Deputy's platform connects your rosters and timesheets directly to payroll, reducing manual data entry and helping surface potential errors for manager review before you finalise each pay run.

What is Payday Super and when does it start?

Payday Super takes effect from 1 July 2026. It requires employers to pay superannuation within seven business days of each payday, replacing the current quarterly deadline. This change aligns super payments with pay cycles and means more frequent transactions for your business.

How long do I need to keep payroll records?

Under the Fair Work Act, you need to keep employee payroll records for seven years. This includes pay slips, time records, leave records, and superannuation contribution records. Storing these electronically through your payroll software makes retrieval and audits much simpler.

Do small businesses need to pay payroll tax?

Payroll tax is a state-based tax that only applies once your total Australian wages exceed the threshold in your state or territory. For example, in New South Wales the threshold is $1.2 million, while in Victoria it's $1 million (as of 2025-26). Most small businesses with fewer than 10 to 15 employees won't hit these thresholds.

If your business operates across multiple states, you may need to register for payroll tax in each state where your employees work. Check your state or territory revenue office for current thresholds and rates.