Running a small business comes with a multitude of responsibilities, and one that should never be overlooked is payroll management. For Australian small businesses, adhering to the guidelines set by the Australian Taxation Office (ATO) and Fair Work legislation is imperative, as non-compliance can have major consequences on small businesses


What is payroll? 

Payroll is the managing of employee compensation while meeting Australian payroll legislation. It includes tasks such as calculating wages, deducting taxes, and making superannuation contributions. Compliance with employment regulations, including minimum wage rates and entitlements, is crucial. 

By adhering to employment regulations and implementing effective payroll practices, small businesses demonstrate their commitment to fair treatment of employees and avoid penalties and other legal consequences. Proper record-keeping and timely delivery of detailed payslips are also essential components of payroll management. Overall, ensuring accurate payroll helps establish trust, foster employee satisfaction, and contribute to the success of a small business. 


Small business payroll compliance

When establishing an Australian small business, it is vital to understand the legal obligations associated with payroll. The ATO regulates the payment of taxes, including income tax withholding and superannuation contributions, while Fair Work legislation ensures that employees are fairly compensated and protected.  

To adhere to the regulations set by the ATO and Fair Work legislation, Australian small businesses should consider the following: 

  • Register with the ATO: Small businesses should register with the ATO to obtain an Australian Business Number (ABN) and ensure they are properly recognized for tax purposes. 
  • Obtain Tax File Declaration forms: Employers should collect Tax File Declarations from their employees detailing their Tax File Number and tax selections to determine how much PAYG should be deducted from their wages.  
  • Implement Pay As You Go (PAYG) Withholding: Small businesses must withhold the correct amount of tax from employee wages and remit these withholdings to the ATO on a regular basis. 
  • Superannuation Contributions: Employers must contribute a percentage of their employees’ earnings to their chosen superannuation funds. Ensure that superannuation contributions are made within the specified time frames and at the correct rates. 
  • Familiarise with Modern Awards or Enterprise Agreements: Understand the applicable modern awards or enterprise agreements for your industry and employees’ roles. Determine the correct minimum wage and entitlements for each employee based on their classification, experience, and hours worked. 
  • Timely and Accurate Payments: Consistent and prompt payment of wages is vital for maintaining a motivated and loyal workforce. Employees rely on their wages to meet their financial obligations, and any discrepancies or delays can lead to financial hardship and diminished workplace morale. Make sure you have the cashflow to ensure employees are paid on time, and the payroll software to support accuracy in payroll calculations. 
  • Provide Accurate Payslips: Issue comprehensive payslips to employees that include gross and net wages, tax deductions, superannuation contributions, and any other relevant information. Ensure that payslips are provided in a timely manner and are in line with requirements set by Fair Work legislation. 
  • Keep Accurate Records: Maintain accurate and up-to-date payroll records, including employee details, tax records, superannuation contributions, and leave entitlements. These records should be retained for the required period, be legible, in English and unaltered, as specified by the ATO and Fair Work legislation. 
  • Stay Informed: Regularly review and stay updated on any changes or updates to tax laws, superannuation requirements, and Fair Work legislation that may impact payroll management. The ATO and Fair Work have newsletters that you can sign up for to keep up to date. 
  • Seek Professional Advice if Needed: If payroll management becomes complex or challenging, consider outsourcing your payroll to a professional business, or consulting with a qualified accountant, bookkeeper, or payroll specialist to ensure compliance with regulations and to streamline payroll processes. 

Adhering to these regulations is not only a legal requirement but also a fundamental step toward building a reputable and trustworthy business.


What are the benefits of payroll for small businesses? 

  • Accuracy and Compliance: Managing payroll manually can be time-consuming and prone to errors. By using compliant payroll software, small businesses can automate calculations, ensuring accuracy in employee wages, tax deductions, and superannuation payments. This helps maintain compliance with the ATO through PAYG and STP reporting, and payment accuracy in line with Fair Work requirements.
  • Time Efficiency: Processing payroll involves numerous tasks, by utilising payroll software and a clear payroll process, this can be streamlined, saving time for small business owners and administrative personnel. Automated systems can handle repetitive tasks, leaving more time to focus on other parts of the business. 
  • Cost Savings: While there may be upfront costs associated with implementing a payroll system, it can lead to long-term cost savings. Automating payroll processes reduces the need for manual intervention, minimising the risk of errors and potential fines resulting from non-compliance. Building out a payroll process that is streamlined and simple for your business is key to ensuring business continuity and scalability in the future.
  • Employee Satisfaction: A reliable payroll process ensures that employees are paid accurately and on time. This boosts employee morale, motivation, and overall job satisfaction. It also reduces the likelihood of payment disputes or grievances, which can contribute to a positive work environment. 
  • Reporting and Analysis: Payroll software typically offers reporting capabilities that allow small businesses to generate several reports based on figures processed in the pay run. These reports can provide insight into the amount the business is spending on labour costs and overheads, making it easier to budget and forecast, and aiding in financial planning and decision-making. These reports can also help with understanding PAYG reporting on Activity Statements and calculating Payroll Tax.  
  • Scalability: As small businesses grow, managing payroll becomes increasingly complex. Having a clear payroll process established before your business can accommodate growth by handling additional employees, managing to report, and supporting payroll legislation requirements. It provides scalability and flexibility to adapt to changing business needs. 


3 Key takeaways for small businesses

  • Establish unwavering compliance and trust: Employees expect their employer to meet legal requirements, including fair wages, superannuation contributions, and accurate PAYG withholding. Ensuring compliance builds employee and public trust and fosters a positive work environment.
  • Make accuracy a priority: Correct payroll management ensures that employees receive their entitled leave, loadings, penalties, and allowances. It also guarantees compliance with workplace entitlements, such as long service leave and parental leave. Utilise payroll software that is suitable for your business needs and can help automate accurate calculations and payments.
  • Build your reputation: A business with a solid payroll system that meets legal requirements is more likely to attract talented employees. Word of mouth can significantly impact a small business, and a positive reputation for fair and accurate payroll practices can enhance its overall image. Keep out of the media for the wrong reasons by adhering to payroll legislation as determined by the ATO and Fair Work.


About Employment Innovations

Employment Innovations is one of Australia’s leading providers of employment services designed to increase productivity and ensure compliance. Its services and solutions include all the tools that every Australian small to medium sized employer needs – including workplace advice, legal services, payroll solutions, migration, human resource management and HR software.



The information provided in these blog articles is general in nature and is not intended to substitute for professional advice. If you are unsure about how this information applies to your specific situation we recommend you contact Employment Innovations for advice.