How to Set Up Payroll for a Small Business

What “setting up payroll” means (in Australia)

Payroll setup is the process of registering for tax obligations, configuring an STP-enabled system, collecting compliant employee data, and creating pay runs that calculate wages, PAYG withholding, superannuation and leave correctly under the right award or agreement.

Done well, it gives you smooth pay cycles, accurate BAS figures (W1/W2), on-time super and fewer ATO or Fair Work issues.

Australian context to keep in view

• Register for PAYG withholding before you start withholding tax from employees, directors or some contractors.
• Single Touch Payroll (STP) Phase 2 reporting is mandatory and must be lodged on or before payday via an approved solution.
• Superannuation Guarantee applies to most employees (11.5% for 2024–25; rates can change) and must be paid via SuperStream.
• Use stapled super where required if a new employee doesn’t choose a fund.
• Pay rates and entitlements depend on Fair Work awards, enterprise agreements or employment contracts.
• Workers’ compensation/WorkCover is required in each state/territory. Payroll tax may apply if you exceed your state threshold.

Step-by-step: how to set up payroll for a small business

1. Confirm who you are paying and why
   • Employee vs contractor, casual vs part-time vs full-time, directors, family members or working holiday makers.
   • Check visa and right-to-work requirements where relevant.
2. Register for PAYG withholding
   • Register in ATO Online Services or via your accountant/BAS agent.
3. Choose STP-enabled payroll software
   • Ensure it supports STP Phase 2, SuperStream, leave accruals, timesheets and award mapping if needed.
4. Collect employee onboarding details
   • TFN, bank details, tax scale, super choice (or stapled super), emergency contact, start date and base rate/classification.
   • Provide required statements (e.g., Fair Work information statements).
5. Configure your payroll file
   • Set pay calendars (weekly/fortnightly/monthly), pay items (ordinary hours, overtime, allowances, deductions, bonuses), leave accruals and SG settings.
   • Map each pay item to the correct STP Phase 2 category so the right data is reported to the ATO.
6. Run your first pay and lodge STP
   • Review gross, PAYG, net pay and super calculations. Lodge STP on or before payday.
7. Pay super via SuperStream by due dates
   • Generally quarterly by the 28th day after quarter end. Paying monthly can smooth cash flow.
8. Reconcile and finalise
   • Reconcile wages, PAYG and super each cycle and at quarter-end for BAS (W1/W2). Complete EOFY STP finalisation.

Choosing payroll software for small business

Pick an STP Phase 2-enabled platform that fits your size, award complexity and budget. Most Australian small businesses use Xero, MYOB or QuickBooks Online. If you run timesheets, project costing or award-heavy payroll, confirm the software (or add-ons) can handle it before you commit.

• Must-haves: STP Phase 2, SuperStream, leave accruals, employee self-service, EOFY finalisation.
• Nice-to-haves: Award interpretation, rostering, time & attendance, automated super payments, HR documents.
• Migration tip: Clean your chart of accounts and pay items before you import employees and balances.

Still deciding? Compare options here and ask for setup help if you want it done for you.

Payroll calendar and due dates to remember

• STP lodgement: On or before payday for each pay run.
• Superannuation: Generally due quarterly by the 28th day after the quarter ends (earlier is fine and often smoother).
• BAS/IAS: Report W1 (gross wages) and W2 (PAYG withheld) for the period.
• EOFY finalisation: Usually due by 14 July (some closely held payees can be finalised by 30 September).

Set calendar reminders and reconcile after each cycle so quarter-end and EOFY are quick to finalise.

Employees vs contractors: get the status right

Misclassification drives many payroll issues. Employees generally need PAYG withholding, super, leave (if not casual), and are often covered by an award. Some contractors trigger withholding and super too, depending on circumstances.

• Check who controls the work, tools, risk, and whether they can subcontract.
• Directors and family members paid through payroll still need correct PAYG, STP and (often) super treatment.
• Document your decision and review it when work patterns change.

Costs, timing and who should run payroll

Simple setups (one to three staff, straightforward hours) can usually be implemented within a few days once registrations and data are ready. Award-heavy or multi-entity setups take longer.

• Software costs: Typically per employee per month.
• Setup: One-off cost for registrations, configuration and data loading if you outsource.
• Ongoing: Per pay run or monthly fee for processing, STP, super and reconciliations.

DIY works for simple teams. If you have awards, allowances, or you’re time-poor, outsourcing to a payroll-capable bookkeeper, BAS agent or accountant usually saves money by reducing errors and rework.

What to compare before you commit

Best next steps

List your headcount, pay cycle, software, awards and any deadlines (e.g., overdue super or STP). Decide whether you want a clean setup you can run yourself, or a managed service that runs payroll for you.

Use the links below to compare options, or go straight to the form and we’ll match you to the right support.