Small Business Payroll Checklist: Australia 2026

Running payroll for a small business in Australia is not just about transferring money into bank accounts every fortnight. It involves a web of legal obligations under the Fair Work Act, the Superannuation Guarantee legislation, and the Australian Taxation Office's PAYG withholding rules. Miss any of them and you are looking at penalties, back-pay claims, or worse — criminal prosecution under the wage theft provisions that took effect on 1 January 2025.

This checklist covers every step a small business owner needs to follow to run payroll correctly in 2026. It is written for businesses with 1 to 50 employees who are covered by Modern Awards under the national workplace relations system.

Before You Pay Anyone: Setup Requirements

1. Register as an Employer with the ATO

Before your first employee starts work, you need:

• An Australian Business Number (ABN) — you probably already have one
• Registration for PAYG withholding — this allows you to withhold income tax from employee wages
• A Tax File Number Declaration (NAT 3092) from each employee

You register for PAYG withholding through the ATO's Business Portal or through your registered tax agent. Processing takes 1-2 business days in most cases.

2. Set Up a Superannuation Compliance Framework

Since 1 July 2024, the superannuation guarantee rate is 11.5% of ordinary time earnings. From 1 July 2025, it increased to 12%, where it remains for 2026.

You must:

• Offer employees a choice of super fund using the Standard Choice Form (or via your payroll system)
• If an employee does not choose a fund, check for a stapled super fund via ATO Online Services for Business
• Only if there is no stapled fund, use a default fund that is a MySuper product
• Pay super contributions quarterly by the 28th day after the end of each quarter (28 October, 28 January, 28 April, 28 July)

Late super payments attract the Superannuation Guarantee Charge (SGC), which includes the unpaid super amount, interest of 10% per annum, and a $20 per-employee per-quarter administration fee. The SGC is not tax-deductible.

3. Identify the Correct Modern Award

This is where many small businesses go wrong from day one. Australia has 155 Modern Awards, and each one has different pay rates, penalty rate structures, overtime rules, and allowance triggers.

To identify the correct award:

1. Check the coverage clause (usually clause 4) of the award to see if your industry or business type is covered
2. Confirm the classification level that matches each employee's duties and qualifications
3. Cross-reference with the FWC's Find My Award tool if you are unsure

Common awards for small businesses include:

4. Check the National Employment Standards (NES)

The NES provides 11 minimum entitlements that apply to all employees regardless of which award covers them. These include:

• Maximum weekly hours of 38 (plus reasonable additional hours)
• Requests for flexible working arrangements
• Paid annual leave (4 weeks per year, pro-rata for part-time)
• Paid personal/carer's leave (10 days per year)
• Compassionate leave (2 days per occasion)
• Parental leave (12 months unpaid, plus right to request 12 more)
• Public holiday entitlements
• Notice of termination and redundancy pay
• Fair Work Information Statement (must be given to new employees before or as soon as practicable after they start)
• The right to disconnect (effective from 26 August 2024 for non-small businesses, and from 26 August 2025 for small businesses)

The Fortnightly Payroll Process

Step 1: Collect and Verify Timesheets

Every pay period, you need accurate records of:

• Ordinary hours worked each day
• Overtime hours — any hours beyond the ordinary hours specified in the award (usually 38 per week for full-time, or beyond 10-12 per day depending on the award)
• Penalty rate triggers — Saturday, Sunday, public holiday, evening, or night work
• The time work started and finished each day — this is a legal requirement under the Fair Work Act s535 and the Fair Work Regulations 2009 (reg 3.34)

Digital time-tracking is strongly recommended. Paper timesheets are still legal but create audit risk because they are easier to dispute and harder to verify.

Step 2: Calculate Gross Pay

For each employee, calculate:

Base pay: Hours worked x applicable hourly rate for their classification level

Penalty rates: Apply the correct multiplier for each penalty-rate period. For example, under the General Retail Industry Award (MA000004), a Level 1 full-time employee earning $23.23/hr base:

Overtime: Most awards prescribe overtime at 150% for the first 2-3 hours and 200% thereafter. Check your specific award.

Allowances: Many awards include allowances for things like uniforms, laundry, meals, tools, or first aid. These are often missed. Check clause 19 (or equivalent) of your award.

Annual leave loading: When employees take annual leave, most awards require an additional loading of 17.5% on top of their base rate (or the penalty rate they would have earned — whichever is greater). See the leave loading clause in your award.

Step 3: Calculate Deductions

Standard deductions include:

• PAYG income tax: Use the ATO's tax tables or your payroll software's built-in tax calculation. The relevant schedule is Schedule 1 — Statement of formulas for calculating amounts to be withheld (NAT 3539)
• HELP/HECS debt repayments: If an employee has indicated a study loan debt on their TFN declaration, additional withholding is required above the HELP repayment income threshold ($54,435 for 2025-26)
• Child support deductions: Only if you have received a formal notice from Services Australia
• Union fees: Only with written employee authorisation
• Salary sacrifice arrangements: These must be documented in writing and reduce the pre-tax amount before calculating PAYG withholding

You cannot deduct amounts for things like till shortages, breakages, or customer non-payment unless the employee has given genuine written consent and the deduction is principally for their benefit. Section 324 of the Fair Work Act is strict on this.

Step 4: Produce Pay Slips

Pay slips must be issued within 1 working day of payment. Under s536 of the Fair Work Act and reg 3.46 of the Fair Work Regulations, each pay slip must include:

• Employer's name and ABN
• Employee's name
• Pay period dates
• Date of payment
• Gross amount paid
• Net amount paid
• Any loadings, allowances, bonuses, incentive payments, penalty rates, or other entitlements paid — separately itemised
• Deductions itemised by name and amount
• Super contributions paid or payable
• Ordinary hourly rate
• Number of hours worked at each rate

Failing to provide compliant pay slips is a contravention of the Fair Work Act. The maximum civil penalty is $18,780 per contravention for an individual or $93,900 for a body corporate.

Step 5: Pay Super

Super does not need to be paid every pay run — the legal minimum is quarterly. However, many businesses now pay super each pay cycle because:

• It is easier to manage cash flow when super is a regular expense rather than a quarterly lump sum
• Single Touch Payroll already reports super each pay run
• Some super clearing houses (like the ATO's Small Business Superannuation Clearing House) process payments quickly and for free

The super guarantee rate for 2025-26 is 12% of ordinary time earnings. Ordinary time earnings include the base rate, shift loadings, and some allowances, but generally exclude overtime.

Step 6: Report via Single Touch Payroll (STP)

All employers, regardless of size, must report payroll information to the ATO via STP Phase 2. This happens automatically through your payroll software each time you run a pay.

STP Phase 2 requires disaggregated reporting of:

• Gross payments broken down by type (salary/wages, allowances, overtime, bonuses, directors' fees, etc.)
• Tax withheld
• Super liability
• Reportable fringe benefits
• Employee details including commencement date and cessation date

Your payroll software handles the STP filing. The key thing is to make sure your pay categories are set up correctly so that each component maps to the right STP reporting code.

Monthly and Quarterly Obligations

PAYG Withholding Remittance

The PAYG withholding you deduct from employees' pay must be remitted to the ATO. The frequency depends on your withholding amount:

• Medium withholder (annual PAYG withholding of $25,001 to $1 million): Pay quarterly, by the 28th day after quarter end
• Large withholder ($1 million+ annually): Pay within 6-8 days depending on when the payment was made
• Small withholder ($25,000 or less): Pay quarterly

Most small businesses are medium withholders and pay quarterly alongside their BAS.

BAS Lodgement

Your Business Activity Statement (BAS) is due quarterly (or monthly if you are GST-registered with turnover above $20 million). The BAS covers:

• GST collected and paid
• PAYG withholding amounts
• PAYG instalments (your own estimated income tax)

Quarterly BAS due dates: 28 October, 28 February, 28 April, 28 July.

Superannuation Guarantee Payments

Due quarterly by the 28th day after quarter end. To be on the safe side, submit payments a week early — clearing houses can take several business days to distribute funds to individual super funds.

Annual Obligations

Annual Wage Review

Every year, the Fair Work Commission hands down its Annual Wage Review decision (usually in June, taking effect from the first full pay period on or after 1 July). For 2025-26, the national minimum wage is $24.10 per hour or $915.90 per week.

You must update all employee pay rates to at least the new award minimums. Failing to do so is a breach of the award and could constitute intentional underpayment under the criminal wage theft provisions.

Payment Summaries / Income Statements

Under STP, you no longer need to issue individual payment summaries to employees. Instead, after you make a finalisation declaration through STP by 14 July each year, employees can access their income statement through myGov.

Record Keeping

Employers must keep employment records for 7 years. Records that must be kept include:

• Employee details (name, start date, employment type)
• Pay records (rate of pay, gross and net amounts, deductions)
• Hours of work records
• Leave records (accruals and balances)
• Superannuation contribution records
• Copies of individual flexibility arrangements, guarantee of annual earnings, or time-off-in-lieu agreements

Failure to keep proper records can result in penalties up to $18,780 per contravention for individuals and $93,900 for body corporates. It also reverses the burden of proof in underpayment claims — if you cannot produce records, the court will assume the employee's version of events.

The 2026 Small Business Payroll Checklist

Use this as a quick-reference checklist:

• Correct Modern Award identified for each employee
• Classification levels assigned and documented
• Pay rates at or above current award minimums (post-July 2025 Annual Wage Review)
• Penalty rates applied correctly for weekends, public holidays, evenings
• Overtime calculated and paid per the award
• Casual loading at 25% applied correctly (not double-dipped with penalty rates)
• Super at 12% calculated on ordinary time earnings
• Super paid by quarterly deadline (or each pay cycle)
• Super fund choice offered to new employees
• PAYG withholding calculated using current tax tables
• Pay slips issued within 1 working day with all required information
• STP Phase 2 reporting each pay run
• Timesheets recording start and finish times
• Fair Work Information Statement given to new employees
• Records retained for 7 years
• Rates reviewed after each Annual Wage Review (usually 1 July)
• Right to disconnect obligations understood and communicated

How AirComply Can Help

Award compliance is the hardest part of small business payroll. There are 155 Modern Awards with different rates, penalty structures, and overtime rules, and they change every year after the Annual Wage Review.

AirComply's calculator covers every award, every classification level, and every penalty rate scenario. Instead of manually looking up pay guides and hoping you have the right multiplier, you can check rates in seconds.

Try the AirComply Award Calculator — it is free and covers all 155 Modern Awards.

Frequently Asked Questions

How often do I need to run payroll?

There is no legal requirement for a specific pay frequency, but most awards require employees to be paid at least monthly. In practice, weekly or fortnightly pay runs are standard. Check clause 21 (or equivalent) of your applicable award for the specific pay frequency rules.

Do I need payroll software or can I use spreadsheets?

You can technically use spreadsheets, but STP Phase 2 reporting requires a compatible payroll or accounting system. The ATO maintains a list of STP-ready solutions. Even basic options like Xero, MYOB, or QuickBooks handle STP, tax calculations, and super payments.

When does the super rate increase to 12%?

The super guarantee rate increased to 12% from 1 July 2025. This is the legislated final step in the gradual increase from 9.5% that began on 1 July 2021. There are no further legislated increases at this time.

What is the penalty for not providing pay slips?

Failure to provide compliant pay slips is a civil remedy provision under the Fair Work Act. Maximum penalties are $18,780 per contravention for an individual and $93,900 for a body corporate. Each missing or non-compliant pay slip is a separate contravention.

Do I need to pay super on overtime?

Generally, no. Super is calculated on ordinary time earnings, which excludes overtime. However, if an employee's contract defines certain overtime hours as part of their ordinary hours, super may apply to those hours. Seek advice if your arrangements are unusual.

What records do I need to keep for Fair Work?

You must keep records of employee details, pay amounts, hours worked (including start and finish times), leave accruals and balances, super contributions, and copies of any employment agreements. These records must be kept for 7 years, must be legible, in English, and readily accessible for inspection.