How to Run Payroll in Australia — Complete Guide

Overview: Australian payroll obligations

Running payroll in Australia involves several distinct legal obligations: paying the correct wages (including Modern Award penalty rates), withholding tax (PAYG), paying superannuation, and lodging Single Touch Payroll (STP) reports with the ATO. This guide walks through each step.

Step 1: Set up your employee records

Before running a pay run, each employee needs a complete record:

• Tax File Number (TFN) — required for PAYG withholding. If an employee doesn't provide a TFN within 28 days of starting, withhold at the top marginal rate (47%).
• Tax declaration (TFN Declaration) — the employee's residency status, Medicare levy exemption, study debt, and any salary sacrifice arrangements.
• Super fund details — employees can choose their own super fund under Superannuation Choice rules. If they don't choose, use your employer's nominated default fund.
• Award classification — determine which Modern Award (if any) covers the employee, and their classification level. This drives penalty rate calculations.
• Employment type — full-time, part-time, or casual. Casual employees receive a 25% loading in lieu of leave entitlements.

Step 2: Calculate wages

Wages must be at least the Modern Award minimum (or enterprise agreement rate, or National Minimum Wage if no award applies). For shift workers, wages typically include:

• Ordinary time earnings (the base rate for standard hours)
• Penalty rates — typically 125% Saturday, 150% Sunday, 225–250% public holidays (varies by award)
• Overtime — typically 150% for the first 3 hours, 200% thereafter
• Allowances — meal allowances, tool allowances, laundry, etc.
• Casual loading — 25% on top of the base rate for casual employees

The Annual Wage Review (Fair Work Commission, usually effective 1 July) updates minimum rates each financial year. Failing to apply the new rates from 1 July exposes employers to underpayment claims.

Step 3: Calculate PAYG withholding

Tax withheld is calculated using the ATO's Tax Withholding Calculator or tax tables, based on:

• Gross wages for the pay period
• Employee's tax scale (from their TFN Declaration)
• HELP/HECS debt status
• Medicare levy exemption or reduction

Good payroll software calculates this automatically. Manual calculation using the ATO's Schedule 1 tables is complex and error-prone.

Step 4: Calculate superannuation

The Superannuation Guarantee rate is 11.5% of ordinary time earnings in 2024–25, rising to 12% from 1 July 2025. Super is payable on ordinary time earnings — it does not include overtime.

Super must currently be paid quarterly, within 28 days of the end of each quarter. From 1 July 2026 (Payday Super), it must be paid on the same day as wages.

Step 5: Process the pay run

A pay run covers a defined period (weekly, fortnightly, or monthly). The output is:

1. Net pay for each employee (gross minus tax minus any salary sacrifice)
2. A payslip for each employee (required by the Fair Work Act — must include specific information)
3. PAYG withholding liability (payable to the ATO via BAS)
4. Superannuation obligation (to be contributed to each employee's super fund)

Step 6: Lodge STP

Single Touch Payroll (Phase 2) requires employers to report wages, tax, and super to the ATO on or before each pay day. The report is lodged electronically through your payroll software.

Each STP report includes year-to-date cumulative figures for every employee — gross income by income type, tax withheld, and super. The ATO uses these to pre-fill employee tax returns.

Step 7: Pay PAYG to the ATO

PAYG withheld is reported on your Business Activity Statement (BAS) and paid to the ATO quarterly (or monthly for large withholders). The due date is 28 days after the BAS period.

Step 8: End of financial year (EOFY)

At 30 June, you must:

• Finalise your STP report — this replaces the old payment summary / group certificate
• Confirm all superannuation for the year has been paid
• Prepare payroll tax annual return if applicable
• Lodge FBT return if applicable

Using payroll software

Most Australian businesses use payroll software to handle these calculations and lodgements automatically. The key criteria when choosing software: Modern Award automation, STP Phase 2, SuperStream integration, and leave management.

ERNVO handles all of this automatically →