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, not quarterly
The right payroll software connects your rostering and timesheets to pay runs, helping reduce errors and supporting your compliance workflows
In this article
Why getting payroll right matters for your small business
If you run a small business in Australia with hourly or shift-based workers, payroll is one of the most important tasks you'll handle. Get it wrong and the consequences are real: the Australian Taxation Office (ATO) can issue penalties for late or incorrect reporting, the Fair Work Ombudsman can pursue underpayment claims, and your employees can lose trust in your business.
Payroll errors aren't rare, either. The Fair Work Ombudsman has recovered hundreds of millions of dollars in underpayments across Australian workplaces, and small businesses in hospitality, retail, and services are among the most affected. Even honest mistakes, like applying the wrong award rate or missing a super deadline, can lead to back-payments, interest charges, and reputational damage.
The good news is that payroll doesn't have to be overwhelming. When you understand the key steps, use the right tools, and stay organised, you can pay your team accurately and on time while meeting your legal obligations. This guide walks you through everything you need to know about running payroll for a small business in Australia.
What you need before you start running payroll
Before you process your first pay run, you need to set up a few essentials. Getting these right from the start saves you time and helps you avoid costly mistakes down the track.
Register your business with the ATO
To run payroll in Australia, you need an Australian Business Number (ABN) and you must register for PAYG withholding with the ATO. PAYG withholding is the system that requires you to withhold tax from your employees' wages and send it to the ATO.
You'll also need to register for Single Touch Payroll (STP), which is the ATO's real-time payroll reporting system. All employers, regardless of size, must report through STP each time they run payroll.
Classify your workers correctly
One of the first decisions you'll make is whether each worker is an employee or an independent contractor. This classification affects your tax, super, and reporting obligations. Employees are covered by the Fair Work Act, entitled to minimum wages under the relevant Modern Award, and must receive superannuation. Contractors, on the other hand, manage their own tax and super.
Getting this wrong can be expensive. If the ATO or Fair Work Ombudsman reclassifies a contractor as an employee, you could owe back-pay, unpaid super, penalties, and interest. If you're unsure, use the ATO's employee/contractor decision tool to check.
Choose your pay cycle
Most small businesses in Australia pay their employees weekly, fortnightly, or monthly. Your pay cycle may be set by the Modern Award that covers your workers. For example, the Hospitality Industry (General) Award and the General Retail Industry Award both require employees to be paid at least monthly, though most employers in these industries pay weekly or fortnightly.
Consider your cash flow when choosing a pay cycle. Weekly payroll means more frequent processing but smaller individual payments. Fortnightly is the most common choice for small businesses because it balances workload with employee expectations.
Set up your payment method
Most Australian employers pay wages by electronic funds transfer (EFT) directly into employees' nominated bank accounts. You can process payments through your business bank account, a payroll platform with built-in payments, or a clearing house for super contributions.
Choose a time tracking system
Accurate time tracking is the foundation of accurate payroll. If you're still relying on paper timesheets or manual spreadsheets, you're increasing the risk of errors every pay cycle. A digital time and attendance system captures clock-in and clock-out times, breaks, and overtime automatically, so your payroll data is accurate before you even start a pay run.
When your time tracking connects directly to payroll, you cut out the manual data entry that causes most payroll errors. Deputy, for example, links rosters and timesheets to pay runs so you don't have to export and re-enter hours into a separate system.
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 run, make sure you understand the basics of PAYG withholding and superannuation. You need to:
Collect a Tax File Number (TFN) declaration from each employee
Determine the correct withholding amount using ATO tax tables
Pay the Superannuation Guarantee (SG), currently 12% of each eligible employee's ordinary time earnings
Lodge your PAYG withholding and super payments by the required deadlines
How to run payroll step by step
Once you've set up the basics, here's how to process payroll each pay cycle.
Collect employee information
For each new employee, you need to collect and securely store:
A completed TFN declaration
A superannuation standard choice form (or use the ATO's stapled super fund process if they don't nominate a fund)
Bank account details for wage payments
Emergency contact details
Proof of work rights in Australia (if applicable)
You also need to identify the correct Modern Award and pay classification for each employee, as this determines their minimum pay rate, penalty rates, and entitlements.
Calculate gross pay
Gross pay is the total amount your employee earns before any deductions. For hourly workers, you calculate gross pay by multiplying hours worked by the applicable pay rate. Remember to include:
Ordinary hours at the base rate
Overtime at the relevant overtime rate
Penalty rates for weekends, public holidays, and late-night shifts
Allowances specified by the relevant Award (such as uniform or travel allowances)
Any leave loading or annual leave paid out
This is where accurate time tracking makes a real difference. When your timesheets automatically capture actual hours worked, including breaks and overtime, you don't have to calculate each component manually. Deputy's timesheet system, for instance, records clock-in and clock-out times and applies the correct pay rates based on your award rules, so your gross pay calculations start from accurate data.
Apply deductions and withholdings
Once you've calculated gross pay, you need to subtract the required deductions to arrive at net pay (the amount your employee takes home). The main deductions are:
PAYG withholding (income tax)
Superannuation contributions (paid to the employee's super fund, not deducted from wages unless salary sacrificing)
Any voluntary deductions the employee has authorised (such as salary sacrifice, union fees, or health insurance)
Mandatory deductions like Higher Education Loan Programme (HELP) repayments or child support, if applicable
Process the pay run
With your calculations done, you process the pay run. This means transferring the net pay to each employee's bank account on your scheduled payday. You also need to generate payslips for every employee, which is a legal requirement under the Fair Work Act. Each payslip must show gross pay, deductions, net pay, super contributions, and the pay period covered.
Report through Single Touch Payroll
Every time you run payroll, you must report the details to the ATO through STP. This includes each employee's gross pay, PAYG withholding, and super information. STP reporting happens automatically through STP-enabled payroll software, so you don't need to lodge separate forms.
If you're using payroll software that's STP-compliant, the report is sent to the ATO as part of your standard pay run. This replaces the old end-of-year payment summary process, meaning you no longer need to issue individual payment summaries to employees.
Keep accurate records
Australian employers must keep payroll records for seven years. These records need to include employee details, hours worked, pay rates, leave balances, super contributions, and tax withholding amounts. Keeping digital records through a payroll system is the most reliable way to meet this requirement, since paper records can be lost or damaged.
Understanding payroll deductions in Australia
Payroll deductions can be confusing, especially when you're managing different types of workers under different Awards. Here's a breakdown of the main deductions you need to handle.
PAYG withholding
PAYG withholding is the income tax you withhold from your employees' wages on behalf of the ATO. The amount you withhold depends on the employee's earnings and the information on their TFN declaration. You can find the correct withholding amounts using the ATO's tax tables or by using payroll software that has these tables built in.
You must remit PAYG withholding to the ATO, usually quarterly for small businesses, though the frequency depends on your withholding amount. If you withhold more than $25,000 per year, you may need to remit monthly.
Superannuation contributions
The Superannuation Guarantee requires you to pay a minimum of 12% of each eligible employee's ordinary time earnings into their nominated super fund. Super is paid on top of wages, not deducted from them (unless the employee has a salary sacrifice arrangement).
Currently, most employers pay super quarterly. However, this is changing significantly. From 1 July 2026, under current proposals, Payday Super will require you to pay super within seven business days of each payday. This means a weekly payroll will generate 52 super transactions per year instead of four. The ATO's Small Business Superannuation Clearing House (SBSCH) is set to close on 30 June 2026, so you'll need an alternative clearing house or a payroll system that can process frequent super payments.
Other deductions (HELP, child support, salary sacrifice)
Some employees may have additional mandatory deductions. If an employee has a Higher Education Loan Programme (HELP) debt and earns above the repayment threshold, you must withhold extra from their pay. The ATO provides specific withholding schedules for HELP repayments.
Child support deductions may also apply if you receive a notice from the Department of Human Services. Salary sacrifice arrangements, where an employee agrees to redirect part of their pre-tax salary into super or other benefits, are voluntary but must be set up correctly and reflected in your payroll records.
