Payroll in Australia: A Complete Guide for US Businesses

Australia is known for having some of the most employee-friendly workplace laws in the world, and payroll in Australia reflects this through high compliance standards. Any business operating in Australia must take payroll obligations seriously, as mistakes can lead to costly penalties, tax issues and employee dissatisfaction.

To manage payroll, companies must meet complex legal requirements, accurately calculate tax withholdings, make mandatory superannuation contributions and ensure employees receive their correct entitlements.

If you’re a U.S. entrepreneur or employer operating in Australia or hiring Australians, this guide will help you avoid missteps, save time, reduce risk and organize your financial flows effectively. We'll also talk about how BatchTransfer can help your team do international payroll.

How to Set Up Payroll In Australia: Registrations and Legal Requirements

To pay salaries or wages in Australia, you must register formally and set up systems before the first pay‑run. For U.S. businesses, additional considerations such as foreign exchange and entity structure come into play.

Step 1: Register for an Australian Business Number (ABN)

The first requirement is registering for an Australian Business Number (ABN)¹. This is a unique 11-digit identifier issued by the Australian Taxation Office (ATO)² and is used in all official business transactions. Your ABN is required for invoicing, registering for taxes, and interacting with government bodies.

Step 2: Apply for a Tax File Number (TFN)

In addition to your ABN, your business needs a Tax File Number (TFN)³. The TFN links your business to the income tax system and is required for fulfilling income tax and reporting obligations. Sole traders can use their individual TFN, but partnerships, companies and trusts must apply for a separate TFN for the business entity.

Step 3: Register for Pay As You Go (PAYG) Withholding

All employers in Australia must register for Pay As You Go (PAYG)⁴ withholding with the ATO. This system requires you to withhold income tax from employee wages and remit it directly to the ATO on their behalf. PAYG withholding ensures employees’ tax obligations are met regularly throughout the year, rather than in a lump sum at tax time.

Step 4: Register for Goods and Services Tax (GST) If Applicable

If your business has an annual turnover of $75,000 or more, you must register for Goods and Services Tax (GST). GST is a 10% tax⁵ on most goods and services sold in Australia. Even though GST is not directly related to payroll, it is often handled alongside payroll tax reporting and should be part of your overall payroll setup checklist.

Step 5: Open a Business Bank Account

To maintain financial transparency, you should open a separate business bank account. This account should be used exclusively for business transactions, including employee salary payments, tax withholdings and superannuation contributions. Keep payroll transactions separate from personal accounts for accurate record-keeping and smooth audits.

Understanding Key Employment Laws That Affect Australian Payroll

The regulatory framework for payroll in Australia is built around the Fair Work Act 2009 and the National Employment Standards (NES). These regulations establish minimum employment rights such as maximum working hours, annual leave entitlements, public holiday pay, redundancy benefits and minimum notice periods for termination.⁶

Industry-specific Modern Awards also apply in many cases. These awards are legally binding documents that detail minimum pay rates, overtime requirements, shift loadings, and allowances for particular industries or occupations. Don’t ignore these obligations if you don’t want Fair Work penalties and back-pay claims.

A solid understanding of income tax obligations under PAYG withholding is also important. Employers must regularly calculate and remit deducted taxes to the ATO, ensuring both the business and its employees remain compliant with national tax laws.

Wage Calculations, Deductions and Pay Cycles

Australian payroll involves correctly calculating gross pay, applying mandatory deductions and selecting a compliant pay frequency. For U.S. businesses with Australian employees, it’s important to understand these basics in order to keep the payroll running smoothly.

Gross Pay: What Counts Toward Employee Earnings

Gross pay refers to total earnings before deductions. It includes:

• Base Salary or Hourly Pay: Based on employment contracts or award rates
• Overtime: Higher rates apply after standard hours or on weekends and public holidays, usually 150% to 200% of the base rate depending on industry⁸
• Commissions and Bonuses: Performance-based or incentive payments
• Allowances: For travel, meals, tools, uniforms or remote work costs
• Leave Loading: Extra pay during annual leave (often 17.5% in many awards)⁸

Employers must correctly classify Ordinary Time Earnings (OTE) since it forms the basis for superannuation contributions.

Required Deductions: Employer Compliance Obligations

Employers must withhold and remit the following deductions:

• Income Tax (PAYG Withholding): Withheld from wages using ATO tax tables
• Superannuation Contributions: 12% of OTE from 1 July 2025, paid on top of salary, not deducted⁷
• Court-Ordered Payments: Child support or other legal garnishments
• Union Fees and Voluntary Deductions: Only with employee authorisation
• Salary Sacrifice Arrangements: Pre-tax agreements for additional super or benefits

Pay Frequencies: Setting a Payroll Schedule

Employers in Australia can pay employees weekly, fortnightly or monthly. Weekly pay is typical in industries with casual or shift work, like retail or construction. Fortnightly pay is common across most industries and provides a balance between ease of administration and regular employee income. Monthly pay is less common and usually applies to salaried office workers. Regardless of the pay cycle, every pay run must be reported to the Australian Taxation Office through Single Touch Payroll (STP).

Superannuation Contributions in the Australian Payroll System

Superannuation, commonly known as “super,” is a compulsory retirement savings system unique to Australia. Under the current legislation, employers must contribute a minimum of 12% of each eligible employee’s ordinary time earnings into a registered super fund.⁷

Superannuation applies to full-time, part-time and most casual employees earning over a threshold amount per month. These contributions must be paid at least quarterly and reported to the ATO through the STP system. Employers who fail to make timely super payments are liable for the Superannuation Guarantee Charge (SGC), which includes interest and administrative penalties.

This component of the Australia payroll guide is especially important, as superannuation represents a significant long-term benefit for employees and a critical compliance obligation for employers.

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BatchTransfer’s core strengths for payroll:

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Managing Leave and Overtime Payments in Australian Payroll

Australian payroll requirements include a comprehensive set of leave entitlements governed by the NES and relevant Modern Awards. Employees receive four weeks of annual leave each year, which accumulates based on their ordinary working hours. Shift workers may be entitled to additional leave days annually.

Personal leave entitlements include ten days of paid personal (sick or carer’s) leave per year, with additional unpaid carer’s leave provisions. Employees are also entitled to paid compassionate leave, unpaid parental leave of up to 52 weeks, and long service leave in certain circumstances.

Overtime pay in Australia is regulated and varies according to Modern Awards. Overtime is usually paid at higher rates, often starting at 150% of the normal rate for extra hours worked or work on weekends and public holidays.⁸

Single Touch Payroll: Mandatory Reporting Requirements

Single Touch Payroll (STP) is a mandatory digital reporting framework introduced by the ATO to streamline employer reporting of wages, PAYG withholding and superannuation. All employers in Australia, regardless of size, must report payroll information to the ATO through STP-enabled payroll systems every pay cycle.

STP eliminates the need for separate payment summaries and reduces errors by ensuring real-time data submission to the ATO. Employers must use payroll software or systems that are STP-compliant, or alternatively, engage a registered payroll provider or accountant to manage submissions.

Failing to comply with STP obligations can result in significant fines, delayed tax filings and compliance audits. A properly functioning payroll system is indispensable for businesses operating in Australia.

Payroll Tax In Australia: State-Based Obligations

Payroll tax in Australia is a state or territory-based tax that applies to employers once their total annual wages exceed a set threshold. Unlike federal income tax, payroll tax is administered by individual state and territory governments, and both the rates and thresholds vary depending on location. This tax applies to wages, salaries, superannuation contributions, allowances, bonuses, and certain contractor payments.

Current Rates Across States and Territories

• In New South Wales (NSW), payroll tax is set at 5.45% on wages exceeding AUD 1.2 million annually.⁹
• Victoria applies a rate of 4.85% for businesses operating in metropolitan areas and a discounted rate of 1.21% for eligible regional employers.
• Queensland charges 4.75% for businesses paying up to AUD 6.5 million in wages and 4.95% for amounts above this threshold.
• South Australia has a payroll tax rate of 4.95% for businesses paying more than AUD 600,000 in wages per year.
• Western Australia levies a rate of 5.5% on wages exceeding AUD 1 million annually.
• Tasmania applies payroll tax ranging between 4% and 6.1%, depending on total wages paid.
• The Australian Capital Territory (ACT) charges 6.85% on wages above its set threshold, with higher surcharges applicable for very large employers.
• In the Northern Territory, payroll tax applies at 5.5% on wages exceeding AUD 2.5 million annually.

Employers should note that these thresholds and rates are reviewed regularly, and updates typically apply from July 1 each year. Make sure to track wages accurately, particularly if your workforce spans multiple regions.

Implications for U.S. Employers

For U.S.-based businesses with Australian employees, payroll tax compliance can quickly become complex, especially if you operate in multiple Australian states. Each location may require a separate payroll tax registration. Grouping provisions may also apply, where multiple related entities, such as a U.S. parent company and its Australian subsidiary, are grouped together for payroll tax calculations. This can impact your threshold calculations and overall tax liability. It is important for U.S. employers to seek local tax advice to ensure correct registration, avoid penalties and accurately forecast payroll costs across regions.

Record-Keeping and Audit Preparation

Employers in Australia are legally required to keep detailed payroll records for a minimum of seven years. This includes payslips, which must be issued within one working day of payment, as well as timesheets, leave balances, STP reports, and all tax and payroll tax records. Regular audits by the Australian Taxation Office and the Fair Work Ombudsman are common, particularly for businesses with growing teams or those hiring across regions. Maintaining clear and accurate records, preferably in digital form, makes it easier to respond to audits, reduces the risk of fines and ensures smoother day-to-day payroll management.

Costs of Payroll Compliance in Australia

Payroll compliance in Australia comes with ongoing costs that businesses must factor into their operating budgets. Companies are responsible for maintaining accurate payroll records, processing timely payments, and meeting all tax and superannuation obligations. This often requires investment in reliable payroll software or local accounting services, along with training internal staff to stay updated on changing regulations. Time spent managing these processes also adds to administrative overhead, especially for smaller teams.

For U.S.-based businesses, there are additional costs linked to managing payroll across borders, including foreign exchange fees and international bank transfer charges. Ignoring compliance responsibilities can lead to far greater costs. Penalties for late superannuation payments, incorrect tax filings or underpaid wages can quickly add up. Businesses may face back payments, fines and extra legal or accounting fees during audits. Reputational damage from non-compliance can also have long-term consequences, making it more difficult to hire talent or establish a positive presence in the Australian market.

Benefits of Payroll Compliance

Stay compliant with Australian payroll regulations, and you may get some business advantages, especially for growing teams with U.S. connections. Proper payroll management creates stability, reduces risk and supports long-term growth. Here are the key benefits of getting payroll right:

• Financial Stability: Accurate payroll processes improve cash flow planning by ensuring all tax, superannuation and payroll tax liabilities are accounted for on time. This helps avoid unexpected tax bills or penalties.
• Happier Employees: Employees who are paid correctly and on time are more satisfied, helping businesses build stronger teams with lower turnover rates
• Easier Expansion: Businesses with organised payroll systems can expand into other states or regions more easily. Clean records and compliant processes reduce the stress of audits and support smoother hiring.
• Stronger Reputation: Companies that consistently follow employment laws are viewed more positively by potential employees and clients, making it easier to attract top talent and build business relationships

Final Thoughts

Payroll in Australia involves strict regulations, multiple tax obligations and mandatory employee entitlements, making it more complex than payroll systems in many other countries. Businesses must focus on getting their registrations in place, applying the correct pay rates, calculating taxes and superannuation accurately, and meeting strict reporting deadlines through Single Touch Payroll.

With proper setup from the start, the right payroll system and a clear understanding of local compliance rules, it can be managed smoothly and efficiently.

Frequently Asked Questions

What is the Minimum Superannuation Rate in Australia?

As of 2025, the minimum superannuation rate is 12% of ordinary time earnings, payable quarterly to an employee’s chosen super fund.

Who Needs to Register for Payroll Tax in Australia?

Employers must register for payroll tax once their total wages exceed the threshold set by their operating state or territory. These thresholds vary by location.

What Is Single Touch Payroll (STP)?

STP is a mandatory digital reporting system that requires employers to report wage, PAYG withholding, and superannuation data to the ATO in real time each pay period.

Do Casual Employees Get Paid Superannuation?

Yes, most casual employees earning more than $450 per month are entitled to superannuation contributions at the standard rate of 12%.

How Long Do I Need to Keep Payroll Records in Australia?

Payroll records, including payslips, time records, and wage calculations, must be kept for at least seven years to comply with ATO and Fair Work requirements.

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Sources:

1. Applying for an ABN – Australian Business Register
2. Australian Taxation Office (ATO)
3. Tax File Number – ATO
4. PAYG Instalments – ATO
5. Are You Ready for GST? – ClearTax Australia
6. National Employment Standards – Fair Work Ombudsman
7. Ordinary Time Earnings for Superannuation – ATO
8. Modern Awards – Fair Work Ombudsman
9. Resources – Payroll Tax Australia