Last updated: December 1st, 2025
As soon as you hire employees, you’re responsible for paying them wages on a regular basis. It’s the bedrock of the employer-employee exchange.
And it’s the law.
Processing payroll can’t be an afterthought.
But it can be clunky. Time-consuming. Infuriating. Especially if you’re using spreadsheets instead of proper accounting software.
Avoid frustrating your team and attracting ATO’s wrath by learning how to process payroll correctly.
How Payroll Affects Your Cash Flow.
The talent and hard work of employees can be a huge driver of profitability, but the flip side is that wages and entitlements can make up a major chunk of your business expenses.
That means you’ll always need cash reserves set aside for payroll and associated taxes.
Keeping an eye on your liquidity ratios and cash flow statements is essential.
Understanding your cash flow helps you:
- Forecast likely cash shortfalls. This tells you which outstanding invoices to chase and which expenses to cut.
- Choose the right cadence for your payroll cycle. For instance, it might be easier to pay staff monthly if most of your clients pay monthly.
- Avoid losing good employees. Late wage payments will quickly erode the trust of your team, hurting your company culture.
Struggling to afford payroll isn’t a good sign for remaining solvent long-term.
If you need to run payroll weekly or fortnightly, you may need to find ways to improve cash flow, such as shortening customer payment terms or incentivising early payments with a discount.
Important!
Awards and employment contracts may specify a frequency of pay that you’ll need to abide by. Otherwise, employees must be paid at least monthly under Australian workplace laws.
What Payroll Regulations Must SMBs Be Aware Of?
When you become a boss, you’ll find yourself under the scrutiny of regulators such as the Fair Work Ombudsman (FWO) and the Australian Tax Office (ATO).
The Fair Work Act 2009 sets out employment standards that all Aussie workers are entitled to, including pay rates such as the minimum wage and modern awards.
Obviously you need to pay people the correct base salary, but you also need to understand when other entitlements – such as paid leave or overtime – actually apply and how to remunerate people accordingly.
The ATO regulates a number of obligations related to payroll processing, including:
- Single Touch Payroll (STP) reporting, which now applies to businesses of all sizes and essentially mandates the use of STP-enabled payroll software.
- Employer superannuation contributions under the Super Guarantee, which makes it compulsory to pay a minimum rate of 12% super to each employee, at least quarterly.
- Pay as you go withholding (PAYGW), which requires you to withhold and pay tax from employees pay to cover their income tax obligations and things like the Medicare Levy.
There are also state-based payroll taxes.
You’ll be liable to pay taxes in any state where you have employees, if your annual taxable wages exceed tax-free thresholds.
As a guide, the threshold is $1.3 million in Queensland, $1.2 million in NSW, and $1 million in Victoria.
Recently, Coles and Woolworths have been in the press for underpaying staff for overtime worked.
Poor payroll management and record-keeping led to a lengthy legal case for the supermarket giants, who may be forced to repay hundreds of millions to staff, and may also face huge penalties.
Plenty of smaller businesses regularly face litigation and penalties from the Fair Work Ombudsman for underpayment and record-keeping contraventions.
Important!
And as of January 2025, intentionally underpaying wages or entitlements became a criminal offence.
Can You Manually Process Payroll In Australia?
It’s impractical to manually work out wages via a spreadsheet, given the Australian Government’s adoption of Single Touch Payroll (STP) reporting.
Using software can also simplify paying employees through electronic transfers direct to their bank accounts.
You can opt for payroll-specific tools or payroll functionality integrated with accounting software, with some popular choices for Aussie SMBs being MYOB, Xero and QuickBooks.
Get Ready To Process A Pay Run: Your 5-Step Guide.
If you’re ready to expand your team and become an employer but you’re not sure where to start when it comes to processing payroll, follow these steps.
1. Collect Information From Your Employee/s.
You can’t pay someone until you’ve got the correct details squared away with the ATO and set-up within your payroll software. New employees need to complete:
- A tax file number (TFN) declaration.
- A standard choice superannuation fund form.
- A withholding declaration.
- A Medicare Levy Variation declaration.
Expert Tip.
The good news is your employees can access these onboarding forms online via their myGov (now known as myID) account, provided it’s linked to the ATO.
But you’ll need to give them relevant details about your business, including your ABN.
2. Ensure Your Systems Are Set Up Correctly.
Having a solid handle on payroll processing requires:
- Being registered for Pay as you go withholding (PAYGW) via the ATO.
- Registering for fringe benefits tax (FBT) if you provide fringe benefits to employees.
- Knowing how to pay superannuation into a complying fund of your worker’s choice.
- Accessing software (or a third-party provider) to meet Single Touch Payroll obligations.
You (or your tax agent) will need to input all your PAYG withholding, FBT and super info into your payroll software before you can process a pay run.
It’s also wise to sit down and create a payroll policy, documenting the procedures and reporting deadlines involved.
Be clear about who has responsibility for what, what records need to be kept and how they’ll be managed and updated (rules and reporting thresholds change!).
3. Calculate Pays And Send Your STP Report.
How you do a pay run will vary somewhat between different payroll software.
But generally speaking, once you’ve navigated to the pay run section, you’ll have options to:
- Select the time period/schedule and employees you’re making payments to.
- Modify any details such as hours worked, leave taken or overtime owed.
- Calculate employees’ net pay minus the relevant taxes and deductions.
Before you confirm your pay run in your software, take a closer look. Get into the habit of double, or triple-checking pay run details every time to avoid errors.
If it all looks good, process the pay run. Then send your payroll report to the ATO via the software.
4. Send Payslips To Employees.
You can’t skip this step. You’re obligated by law to send pay slips (either in hard copy or electronically) within 1 working day of pay day, even if an employee is on leave.
It should be straightforward to email payslips to your team via your payroll software once you’ve finalised a pay run.
5. Make Payments Via Your Bank And Reconcile Your Statement.
If you’ve allowed for electronic payments in the settings, your payroll software will let you generate a bank file (aka ABA files) based on each pay run.
Did You Know?
In addition to a bank transfer, it’s acceptable to pay employees either by cash or cheque. Cheques can be a cash flow risk — you can’t know for sure when they’ll be cashed.
By uploading the bank file into your online banking account, the bank has the information needed to make payments to each of your employees.
Each bank’s process for submitting a bank file looks a bit different, so check their help resources first.
Expert Tip.
It’s best practice to reconcile your payroll payment within your accounting software as soon as the bank statement is available. If the amounts all line up, that’s a reassuring sign your employees have been paid correctly.
Improve Your Payroll Processing.
You might be obsessed with raising your business’ profit margins, but your employees have no incentive to share your vision and drive if they’re not getting paid.
Sloppy payroll processing is a turnover risk in an inflation-riddled economy where one in eight Aussie workers don’t think they’re earning enough to cover their costs.
You can’t keep your team focused on business growth if you can’t pay wages accurately or on time. And you also risk severe penalties from regulators.
Investing in payroll software that helps automate payroll calculations, reporting and payments is a no-brainer. Especially since payroll complexity can increase the more your business grows.
Jody
