How to do payroll: Your step-by-step guide

How to do payroll: 8 steps

Payroll has two parts: things you set up once, before your first pay run, and things you repeat every pay cycle.

1. Register for PAYG withholding with the ATO before you first pay an employee.
2. Check each worker is an employee, not a contractor, because the rules are different.
3. Set up payroll software that reports through Single Touch Payroll (STP). Almost every employer has to report this way.
4. Collect each new employee’s details: TFN declaration, super fund and bank account.
5. Work out their pay rate from their award, agreement or contract.
6. Each pay run, calculate gross pay, tax withheld and super, then pay the net amount.
7. Give each employee a payslip within 1 working day of paying them.
8. Report the pay run to the ATO through STP on or before payday, and make sure super reaches their fund within 7 business days.

What is payroll?

Payroll is the process of paying your employees and meeting the obligations that come with it. Each pay cycle, you work out what every employee has earned, withhold their income tax, pay them, give them a payslip, report the payment to the ATO and pay super into their fund. In Australia, the ATO sets the tax and reporting rules, and the Fair Work Ombudsman enforces the pay, payslip and record-keeping rules.

What goes into each pay

• Gross pay: Ordinary hours at the employee’s rate, plus any overtime, penalty rates, allowances, loadings, bonuses or commissions, and any paid leave taken.
• Tax withheld (PAYG withholding): The employee’s income tax, which you hold back and pay to the ATO.
• Other deductions: Amounts the employee has agreed to, such as salary sacrifice, or that you’re legally required to deduct, such as child support.
• Net pay: What lands in the employee’s bank account.
• Super: Paid by you on top of their pay, into their super fund, not to the employee.

Net pay = Gross pay − Tax withheld − Other deductions

Payroll tax is something else. It’s a state tax on your total wages, and you only pay it once those wages pass your state’s threshold. See payroll tax in Australia.

How to set up payroll (do this once)

Before your first pay run, you need to be registered, have a way to report to the ATO, and have each employee’s details and pay rate on file. These steps apply from your first employee.

1. Register for PAYG withholding

   You must register for PAYG withholding before you first make a payment you need to withhold from, even if the amount you’d withhold is nil (ATO). If you have an ABN, you can register online, through your tax or BAS agent, or by phone. Starting from scratch? See how to start a business in Australia.

   More detail: what PAYG withholding is and how to register.

2. Check each worker is an employee, not a contractor

   Employees go through payroll. Independent contractors invoice you instead. The difference depends on the whole working relationship, not on what the contract calls it. If you treat an employee as a contractor, you can end up owing the super guarantee charge and PAYG withholding penalties (ATO), plus back pay under Fair Work law.

   More detail: contractor vs employee.

3. Set up payroll software that reports through STP

   Employers report each pay run to the ATO through Single Touch Payroll (STP) from their first employee, unless the ATO has granted them an exemption or deferral. There’s no general exemption for micro employers. Employers with 1 to 4 employees can use low-cost STP products listed on the ATO’s product register (ATO: Micro employers). Once your software is set up, you connect it to the ATO so it can lodge on your behalf.

   More detail: Single Touch Payroll software and registering with the ATO as an employer.

4. Collect each new employee’s details

   This is how you put an employee on payroll. Before their first pay, collect and give out the following:

   • TFN declaration. If you use STP Phase 2 software, you don’t send it to the ATO. The details go through your STP reporting, and you keep the form. If an employee doesn’t give you their TFN, you generally withhold at the top rate, which is 47% for residents. An employee who has applied for a TFN has 28 days to give it to you first (ATO). See TFN declarations for employers.
   • Super fund. Give eligible new employees a Standard choice form within 28 days of their start date. If they don’t choose a fund, request their stapled super fund from the ATO, and use your default fund only if they don’t have one (ATO). See the super details employers need.
   • Bank account details for paying their wages.
   • Information statements. Give every new employee the Fair Work Information Statement before, or as soon as possible after, they start. Casual employees also get the Casual Employment Information Statement, and fixed-term employees get the Fixed Term Contract Information Statement (Fair Work). See the Fair Work Information Statement and the Casual Employment Information Statement.
   • A written agreement setting out their role, employment type, hours and pay. See employment contracts.

   For the full first-week checklist, see employee onboarding.

5. Work out pay rates and entitlements

   Most employees are covered by a modern award, which sets their minimum pay rate, penalty rates, overtime and allowances. Find the award and its current rates with the Fair Work Pay Calculator or the pay guides. Employees on an enterprise agreement are paid under that agreement instead. Adult employees who aren’t covered by an award or agreement can’t be paid less than the national minimum wage, which is $26.44 an hour from the 2026 Annual Wage Review. Different rates apply to juniors, apprentices and trainees (Fair Work Commission).

   Casual employees get a casual loading on top of their base rate instead of paid leave. See casual employment.

6. Choose a pay cycle and get workers’ compensation insurance

   Check the “payment of wages” clause in the employee’s award or agreement. Most set weekly, fortnightly or monthly pay. If the award doesn’t say, you must pay at least monthly (Fair Work).

   Workers’ compensation insurance is compulsory for almost all employers in every state and territory (Safe Work Australia). Arrange it with your state or territory’s scheme before your employee starts.

How to run a pay run (every pay cycle)

Once you’re set up, each pay run follows the same sequence. Payroll software does the calculations and the ATO reporting, but it helps to know what’s happening at each step.

1. Collect the hours worked

   Gather timesheets for the pay period, including overtime, and any leave taken. Approve them before you calculate pay.

2. Calculate gross pay

   Multiply ordinary hours by the employee’s rate, then add overtime, penalty rates, allowances, loadings and any paid leave, using the rates in their award or agreement.

3. Work out the tax to withhold

   Use the ATO’s tax tables or its tax withheld calculator. The amount depends on the employee’s pay and the answers on their TFN declaration, such as whether they claim the tax-free threshold. See how to pay tax for employees.

4. Take out any other deductions

   Deduct anything the employee has agreed to in writing, such as salary sacrifice, and anything you’re legally required to deduct. What’s left is their net pay.

5. Pay your employees

   Pay net wages into each employee’s bank account on payday, usually by bank transfer or by uploading an ABA file to your bank. See how to pay employees.

6. Report the pay run through STP

   Your STP report must reach the ATO on or before the payment date (ATO). Most STP software lodges it when you finalise the pay run.

7. Give each employee a payslip

   Issue payslips within 1 working day of paying, on paper or electronically. A payslip must show the employer’s and employee’s names, the employer’s ABN (if it has one), the pay period and pay date, gross and net pay, the rates and hours paid, any allowances, loadings or penalty rates, each deduction, and the super contributions made or to be made, and the fund’s name (Fair Work). See payslips or start from a payslip template.

8. Pay super

   From 1 July 2026, super guarantee contributions must reach each employee’s fund within 7 business days of payday. You get 20 business days for a new employee’s first contribution or the first payment to a new fund (ATO: Payday Super). Super is 12% of qualifying earnings, which replaced ordinary time earnings from 1 July 2026 (ATO). See how to pay superannuation.

Between pay runs, pay the tax you withheld to the ATO on your activity statement. Most small businesses pay it quarterly (see the payroll calendar).

A pay run, start to finish: Worked example

Here’s one weekly pay run for a full-time employee, showing what’s due and when. It uses the national minimum wage for simplicity. Most employees are covered by an award, so use their award rate.

The deadline is when the fund receives the money, not when you send it, so allow time for your clearing house to process the payment.

Payroll calendar: What’s due when

Large withholders (more than $1 million a year) pay within days of each pay run. The ATO sets your cycle and reviews it every year.

Ways to run payroll: Manual, software or outsourced

Whichever way you run payroll, the reporting has to go through STP-enabled software, so a spreadsheet on its own isn’t enough.

Common payroll mistakes to avoid

• Paying below the award. Using an old rate after the annual wage review, or missing penalty rates and allowances. Check the pay guides each July.
• Treating employees as contractors. This can leave you owing super, tax and entitlements. See contractor vs employee.
• Paying super late. Under Payday Super, the ATO charges the super guarantee charge on late or missed contributions. That covers the shortfall plus notional earnings, plus an administrative uplift of up to 60% (ATO). See the super guarantee charge.
• Withholding the wrong tax. Usually caused by a missing TFN declaration, or an employee claiming the tax-free threshold from two employers.
• Missing payslips or records. Both are Fair Work obligations, and inspectors can issue fines for them. See how to run a payroll audit.
• Forgetting STP finalisation. Your employees’ income statements aren’t marked “tax ready” until you finalise. See EOFY payroll.

How to do payroll in Payroller

Payroller is Australian payroll software for small businesses, on web and mobile. It covers the pay-run steps above in one place:

• Calculates wages, leave and super automatically, and generates payslips in one click.
• STP Phase 2 enabled: it submits your payroll information to the ATO each time you complete a pay run.
• Payday Super ready: it calculates super each pay run and pays it through SuperStream via the Beam clearing house.
• Makes pay runs from approved timesheets, with rostering and an employee app for payslips and leave.
• Lets you invite your accountant, bookkeeper or BAS agent through the free Agent portal.

Get started with the step-by-step guides: setting up as a business, adding employees, creating pay runs, enabling and submitting STP and paying super via Beam.

Payroller does the calculations and reporting. You’re still responsible for entering accurate employee details and paying super on time.

Payroll guides for every step

Go deeper on any part of the process.