Payroll Basics for Australian Small Businesses

Payroll is the part of running a small business that punishes mistakes most reliably. Get an expense code wrong and you tidy it up later. Get superannuation wrong and there are real consequences, and they land on the employer rather than anyone else.

None of it is beyond an ordinary business owner. But it is detailed, the rules change, and "I did not realise" is not a defence. This is a plain-English overview of what an Australian small business employer is actually required to do.

Paying the correct rate

Most employees are covered by a modern award setting minimum pay rates, along with penalty rates, overtime, allowances and casual loading specific to that industry.

The award that applies depends on the work being performed and the industry you operate in — not on what you call the role. Giving someone the title "manager" does not remove an award obligation.

Underpayment is usually accidental. An employer applies a rate that was correct three years ago, or assumes a salary comfortably covers everything an award requires. It remains the employer's responsibility to correct, including back pay, and there is no time limit on that catching up with you.

If you are unsure which award applies, the Fair Work Ombudsman is the authority to check with, and its pay calculator is free.

Superannuation

Superannuation guarantee contributions must be paid for eligible employees at the legislated rate, calculated on ordinary time earnings, and paid into each employee's chosen fund by the quarterly due dates.

Two things catch employers out.

First, the rate has increased in steps over recent years. A figure you set once and never revisited may now be too low, and the shortfall accrues quietly across every pay run.

Second — and this is the important one — if superannuation is paid late, even by a day, it stops being deductible and triggers a separate reporting obligation. The deadline is unforgiving in a way most tax deadlines are not. It is one of the few dates genuinely worth a recurring calendar reminder.

A practical note: "paid" means received by the fund, not sent by you. Clearing houses take time. Paying on the due date is often paying late.

Single Touch Payroll

Single Touch Payroll means you report salary, tax withheld and superannuation information to the ATO every time you run a pay, rather than once a year.

Xero and MYOB both handle the submission, but it has to actually happen with each run — it is a step, not a setting.

The practical consequence is that payroll errors are visible to the ATO immediately rather than at year end. There is no longer a quiet window in which to notice and quietly fix things, which is another argument for getting the setup right rather than intending to review it later.

Leave entitlements

Permanent employees accrue annual leave and personal (sick and carer's) leave as they work. Casual employees generally do not, and receive a casual loading instead. Long service leave in Queensland has its own rules and its own timeframes.

Accruals should be tracked in your payroll software from the first pay run. Reconstructing several years of leave balances afterwards is genuinely difficult, and disagreements about leave are unpleasant for everyone involved — particularly in a small team where the relationship matters.

Tax withheld from wages

You withhold PAYG amounts from employee wages and remit them to the ATO. Your software calculates this from the tax file number declaration each employee completes when they start.

Make sure those declarations are actually collected and entered. Guessing at someone's circumstances — whether they are claiming the tax-free threshold, whether they have a study loan — causes problems for them at year end, and they will reasonably expect you to fix it.

Record keeping and payslips

Employers must keep pay records for seven years, covering hours worked, rates paid, superannuation contributions and leave balances. Employees must be given a payslip within one working day of being paid.

These are not optional or informal requirements, and they are among the first things asked for if a dispute or an audit arises.

Where small businesses most often come unstuck

• Treating an employee as a contractor. Whether someone is genuinely a contractor depends on the working relationship — control, hours, who supplies equipment, whether they can subcontract — not on having an ABN or an agreement that says so. Getting this wrong creates back-payment obligations for superannuation and entitlements, sometimes years later.
• Paying superannuation late. The most common and most expensive slip, because the deadline passes quietly and nothing happens immediately.
• Assuming a salary absorbs award obligations. It may not, particularly where overtime or penalty rates apply. Annualised arrangements have their own requirements.
• Skipping Single Touch Payroll on a rushed pay run. Easy to overlook, and now immediately visible.
• Letting leave balances go untracked. Small at first, difficult to unwind later.
• Not updating rates after an award increase. Minimum rates typically change annually. A rate that was compliant last year may not be this year.

Should you outsource payroll?

Payroll is reasonable to keep in-house if you have a small number of employees on simple, consistent arrangements and you are comfortable with the obligations.

It becomes worth handing over when staff are on varying hours, when an award with penalty rates applies, when the team is growing, or simply when you would rather not carry the risk personally.

Our payroll processing covers pay runs, superannuation, Single Touch Payroll and leave tracking, so it happens the same way every time rather than depending on how busy the week was.

Frequently asked questions

Do I need to pay superannuation for casual employees?

Superannuation applies to eligible employees including casuals under current rules. Eligibility conditions have changed in recent years, so it is worth confirming your position rather than relying on older advice.

What happens if I discover I have underpaid someone?

Correct it as soon as you find it — work out what was owed, back pay it, and fix the ongoing rate. Self-correcting promptly is viewed very differently from being found out later, and employees generally respond far better to an employer who fixes it voluntarily.

Can I run payroll in Xero myself?

Yes, and many owners do. Xero handles the calculations and Single Touch Payroll submission well. What it cannot do is confirm you have applied the correct award or classified someone correctly — those are the two places errors actually originate.

How often do I have to pay staff?

Pay frequency is generally set by the applicable award or agreement — commonly weekly, fortnightly or monthly. It needs to be consistent, and stated in the employee's terms.

Does payroll affect my BAS?

Yes. PAYG withholding is reported through your activity statement. Our BAS preparation is provided under the supervision of a Registered BAS Agent, and payroll figures feed directly into it — which is why payroll errors tend to show up twice.

Want payroll off your plate?

We handle payroll for small businesses across Ipswich, Springfield and greater Brisbane, so staff are paid correctly and on time and your obligations are met without you having to track them. Get in touch for a free, no-obligation chat.