Australia's payroll system is becoming more and more complex every year due to the changing nature of the workforce, the strong enforcement of the Australian Taxation Office (ATO), and the major changes and improvements like Payday Super.
In order to avoid legal trouble, be compliant, build confidence in employees, and ensure the smooth functioning of an enterprise, employers, payroll personnel, HR departments, and accountants need to understand these standards.
This guide brings everything together in a single place, from wages and awards to tax obligations, STP reporting, leave, superannuation, and 2025–2026 updates.
Understanding the Australian Payroll System
Payroll in Australia shall be regulated by a combination of employment law, taxation law, and superannuation law. These legal frameworks work together to ensure that employees are paid correctly and companies report and fulfil their obligations on time. For employers, payroll is not just about paying wages; it involves applying the correct award, determining the entitlements, withholding the correct tax, and strictly complying with reporting and record-keeping requirements.
The Fair Work Act 2009, the National Employment Standards (NES), state and federal taxation laws, and superannuation legislation are among the main legislations governing payroll. The employer is legally responsible for keeping up to date with all such rules, even if the calculation is carried out by a payroll service or software.
Key Frameworks Shaping Payroll:
- Fair Work Act 2009
- National Employment Standards (NES)
- Modern Awards and Enterprise Agreements
- Superannuation Guarantee (Administration) Act 1992
- Income Tax Assessment Acts
- ATO Single Touch Payroll (STP) Regulations
- State and Territory Long Service Leave Laws
Core Components of Payroll in Australia
Payroll is made up of several key components that all need to align for each pay cycle to be compliant. In 2025–2026, expectations from the ATO and Fair Work are higher than ever, specifically with regard to automated data-matching, real-time reporting, and stronger enforcement powers. Employers must understand wages, tax, superannuation, and leave as a connected system - not separate items.
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Wages and Salaries
Wages form the foundation of payroll and must comply with the minimum standards set out in Modern Awards or Enterprise Agreements. Employers must classify employees correctly, apply the right pay rates, and account for overtime, allowances, and penalties as instructed. Every year, the Fair Work Commission reviews and updates wage rates, so payroll teams must stay up to date.
Payroll must consider:
- Base pay rates from the correct award or agreement
- Accurate employee classification
- Penalty rates, overtime and shift loadings
- Allowances (uniform, travel, meal, first aid, etc.)
- Annual wage increases from Fair Work
- Record-keeping to prove compliance
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PAYG Withholding and Tax Requirements
PAYG Withholding ensures the correct amount of tax is deducted from an employee’s pay. Employers must use ATO tax tables, process TFN declarations, and update rates when employees change circumstances. Incorrect tax withholding can lead to ATO penalties and unnecessary liabilities for the employer.
Payroll must consider:
- Using ATO’s latest tax tables
- Processing TFN declarations correctly
- Withholding for bonuses, commissions and lump sums
- Reporting PAYG through STP each pay cycle
- Monthly or quarterly PAYG payment deadlines
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Superannuation Contributions
Superannuation is a compulsory part of payroll, designed to support employees’ retirement savings. As of 1 July 2025, the Super Guarantee (SG) rate is 12%. Employers must pay super into a complying super fund and report via SuperStream.
Payroll must consider:
- Minimum SG rate of 12%
- Ordinary Time Earnings (OTE) calculations
- Choice of fund and stapled super rules
- Quarterly contribution deadlines
- SuperStream electronic reporting requirements
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Leave Entitlements Under NES
Leave entitlements are governed primarily by the National Employment Standards (NES). Employers must track leave accruals accurately, apply entitlements based on employment type, and pay the correct rates for leave taken. Mistakes with leave payments are among the most common reasons for Fair Work investigations.
Payroll must consider:
- Annual leave (full-time and part-time)
- Personal/carer’s leave
- Compassionate and domestic violence leave
- Parental leave entitlements
- Long service leave (state-based rules)
- Accurate accrual and carry-forward tracking
Fair Work and Awards: What Employers Must Follow
Fair Work is central to payroll compliance in Australia. Modern Awards are legally enforceable standards that outline pay rates, classifications, allowance rules, rostering rules, breaks, and penalty rates. Every payroll system must align with the relevant award and apply rulings accurately.
Key obligations include:
- Applying the correct award and classification
- Keeping updated with annual wage reviews
- Issuing compliant payslips within 1 working day
- Maintaining employment and payroll records for 7 years
- Ensuring all entitlements are paid correctly and on time
Fair Work’s wage theft laws are expanding across states, and underpayment penalties are becoming harsher. Award accuracy is not optional; It is expected and enforceable.
ATO Requirements: STP, Reporting and Super Reforms
The ATO plays a major role in payroll compliance, especially with the introduction of digital reporting systems. Employers must report payroll information every pay cycle through STP-enabled software, keep employee data accurate, and ensure super contributions are paid on time.
Single Touch Payroll (STP) Phase 2
STP Phase 2 requires employers to report more detailed payroll information, enabling the ATO to automate data-matching with Centrelink, Services Australia, and superannuation funds.
STP Phase 2 requires reporting of:
- Income types and payment classifications
- Allowances are broken into specific categories
- Tax treatment codes
- Employment basis (full-time, part-time, casual)
- Child support deductions
- Lump sum payments
STP reports are due on or before payday, which means payroll errors now trigger immediate ATO alerts.
SuperStream and Superannuation Reporting
All super payments must be made electronically and reported via SuperStream. Late payments trigger the Super Guarantee Charge (SGC), which is costly and not tax-deductible.
Super obligations include:
- Quarterly payment deadlines
- Accurate OTE calculations
- Electronic payments (no cheques)
- Reporting via SuperStream-compliant systems
- Keeping records of contributions
Payroll Frequency and Key Deadlines
Australia allows employers to choose their pay cycle as long as it is consistent and communicated to employees. Most businesses use weekly or fortnightly cycles, but monthly is allowed in some industries.
Pay cycle options:
- Weekly
- Fortnightly
- Monthly
Key deadlines:
- PAYG withholding: 21st of each month (or quarterly for small withholders)
- Super guarantee: 28 days after quarter end
- STP reporting: every payday
- End of financial year finalisation: by 14 July
The Payday Super Reform (Mandatory from 1 July 2026)
Payday Super is one of the biggest payroll reforms in decades. The new system requires superannuation to be paid at the same time as wages, instead of quarterly. This creates real-time visibility for employees and reduces unpaid superannuation across the country.
Why it matters:
- Improves retirement outcomes
- Reduces super underpayment risks
- Aligns with real-time payroll compliance trends
What employers must do before July 2026:
- Transition to real-time super payment tools
- Automate super with payroll systems
- Ensure payroll calculations sync with super funds
- Update internal processes and cut manual steps
Common Payroll Compliance Challenges
Despite advanced payroll systems, errors still happen, often because employers underestimate the complexity of Australian payroll law. Identifying these issues early helps businesses avoid costly penalties.
Key compliance challenges:
- Misclassifying employees and contractors
- Incorrect award interpretation
- Delayed or incorrect super payments
- Incomplete STP submissions
- Manual data entry and calculation errors
- Poor payroll record-keeping
- Using outdated pay rates or tax tables
Year-Round Payroll Compliance Checklist
This checklist helps employers stay compliant throughout the year and avoid last-minute problems.
Compliance essentials:
- Use STP-enabled payroll software
- Apply correct awards and pay rates
- Classify employees correctly
- Calculate and pay super on time
- Maintain payroll records for 7 years
- Send payslips within 1 business day
- Stay updated with Fair Work and ATO changes
- Review payroll processes annually
- Monitor employee classifications and allowances
Conclusion
Australia’s payroll system is becoming increasingly complex, with Fair Work, the ATO and superannuation rules all demanding higher accuracy, stronger record-keeping and timely reporting.
Employers now need more than basic wage processing; They must ensure correct award interpretation, pay the right entitlements, keep up with tax and super changes, and maintain clear, auditable payroll records.
As reforms like Payday Super move Australia toward real-time compliance, businesses that use accurate systems, automated tools and up-to-date processes will be better protected from penalties and payroll risks.
By understanding how each part of payroll connects, employers can build a compliant, reliable and employee-focused payroll function that supports long-term business stability.
