Payroll Systems Australia: The Ultimate Guide

A small business owner processing payroll using QuickBooks Payroll software on laptop

Choosing a payroll system is one of the most important decisions for a growing business. While there are many different elements of running a business, one of the most important is payroll. Payroll processing is best defined as the process of compensating employees for the work they perform. This compensation can be monetary or also a combination of money and benefits. Without a streamlined and reliable payroll system in place, businesses may face tough consequences including poor employee retention, minimal employee engagement, and reputational damage.

Employees depend on their paychecks to go about their everyday lives, whether it be paying their mortgage, putting food on the table, or saving for retirement. Even the smallest error in your business’s payroll processing could result in your workforce receiving their payment late, creating undue stress to your employees. 

With that said, it’s easy to understand why having a dependable payroll system is vital to any business. If you’re a first-time small business owner with employees, learning how to do payroll is an essential step in your operations. Using this guide, we’ll walk you through the different payroll systems and their advantages and disadvantages. Keep reading to learn about the different methods, or jump right into the section below that answers your question.

Introduction to payroll systems and methods

Though seemingly simple and straightforward, payroll is actually quite complex and requires a number of intricate moving parts for successful processing.

There are three traditional ways businesses can complete their payroll:

  • Manually
  • Using payroll software
  • With the assistance of a professional or external bureau

Let’s take a closer look at each payroll method and their respective pros and cons for businesses looking into payroll systems in Australia.

An illustration showing three ways to complete payroll

Manual payroll systems

A manual payroll system requires the entire payroll process to be done by hand. Should you decide to do payroll yourself, you can purchase standard time sheets for documentation and ask your employees to complete them. With the completed timesheets, you can then perform the appropriate wage and tax calculations, and finally hand write the pay cheques, pay in cash or electronically transfer funds to your employees.

It is worth noting that manual payroll processing requires a number of involved steps that may be more time consuming than you might think. This is especially true of businesses that teeter between small and medium-sized. The more employees you have, the trickier and more time consuming it is to manually run payroll.

Pros and cons of manual payroll



Inexpensive to implement

Higher change of errors and inaccurate reporting

Easy option for small businesses with small staff

Business forced to rely on honour system for employee records

Simpler for beginners

Time consuming and tricky

Payroll software

Bringing the digital element to the world of business operations, payroll software effectively levelled the playing field. These computer programs are designed to handle numerical inputs and outputs and calculate the correct owed compensation for each employee. Adding an element of automation, payroll software programs make tracking, maintaining, and delivering employee compensation simple and efficient.

Although payroll software can be considerably more expensive than manually running payroll, it’s far more dependable, secure and accurate. Without any dependence on honour systems or manual calculations, you can rest assured knowing specialised payroll software gets it right, every time.

Depending on the complexity of the payroll software, you may have to pay for training to get yourself and your staff familiar with the system. In addition, if your workforce is larger, you may need to hire payroll staff to ensure there is a dedicated effort placed on proper payroll processing. This, of course, can prove more expensive in the long run as hiring a specialised payroll person may require you to pay additional salaries and benefits.

QuickBooks Payroll powered by Employment Hero services are among the most popular payroll software programs small business owners and first-time payroll users choose. Offering worry-free payroll processing, time-saving automation, and many other advantages, QuickBooks payroll provides the support you need, all year-round.

Pros and cons of payroll software



Simple to maintain

More expensive than manual payroll systems

Eliminates human error

May require formal training

Expedited processing

May require additional staff

Outsourced payroll processing 

Outsourcing your company’s payroll to a professional is a cost-effective and time-saving option. Doing so takes the burden off your shoulders and puts your payroll into trusted, experienced hands. Payroll service professionals can do everything from collecting employee information and setting up direct deposit to handling payslips and filing tax payments. With a professional, you can expect to pay a fixed rate for the service, which eliminates the need to hire a full-time worker. 

Allowing a professional to take care of your business’s payroll can provide huge benefits to your company. It can also help support a more streamlined system of business operations.

The downside to outsourcing is that when employees have payroll concerns, immediate help might not be available and up to date leave records are only as up to date as the last report you were provided. However, outsourcing payroll functions will inevitably free up more of your time and allow you to keep a better handle on other facets of running your business.

Pros and cons of outsourced payroll processing



Simple to maintain

More expensive than manual payroll systems

Eliminates human error

Lack of control over your payroll process

Expedited processing

Confidentiality and privacy threats 

3 reasons why a payroll system is essential

Payroll is a necessity for every business, no matter how big or small. Having effective Australian payroll systems can ensure everyone on the team gets their proper paycheck on time. While a payroll system can benefit employees, it’s also a great asset for employers. Below, we’ve listed just a few reasons why it’s essential to have a payroll system in place for your business.

  1. Save time: A payroll system can help you streamline the payroll process. Manually adding figures, entering data, and calculating taxes can be time-consuming. A payroll system allows you to spend less time on payroll and more time running your business.
  2. Boost employee satisfaction: Your employees are going to want to receive the wages they’re due come payday. A payroll system helps to ensure employees are paid the correct amount on time.
  3. Tax compliance: One of the most difficult parts of processing payroll is accounting for tax withholdings. Each pay period, deductions need to be made for taxes, Medicare, and so on. Failing to account for employment tax deductions can land your company in trouble with the ATO. A solid attendance and payroll system will make any necessary tax deductions or garnishments so that your company stays in compliance.

How to do payroll manually

Calculating withholding taxes, employee net pay, and payroll taxes is no easy task, but it’s required of every business owner with a workforce. If you plan to save on costs and put your brain to work, use the following steps to learn how to do payroll manually.

Step 1: Gather your tax information

If this is your first time running payroll, you’ll need to be registered for PAYG withholding with the ATO. You should apply for PAYG withholding registration prior to your first pay run. The frequency on which you need to report your withholdings is determined by whether you are classed as a Small, Medium or Large withholder. You can apply online through the Online Services for business, through your registered tax or BAS agent, using your SBR compatible software or by calling the ATO business line directly.

Step 2: Have your employees fill out a TFN declaration (Tax File Number Declaration)

Employees need to complete this form so that employers can calculate the amount of tax to be withheld from payments to the employee. This form needs to be given to new employees on commencement and lodged with the ATO within 14 days after the form is either signed by the employee or completed by you. Electronic copies of the forms can be downloaded from the ATO website and filled in on-screen or completed by hand before returning to the employer.

Step 3: Determine a payroll calendar

There are three different calendars you can choose from: weekly, fortnightly, and monthly. Each comes with different advantages and disadvantages, costs, and payroll dates.

An illustration showing options for a payroll schedule

Step 4: Calculate gross pay and withhold income taxes

Gross pay is the number of hours an employee has worked within a given pay period multiplied by their hourly rate. If they are on a salary it will be the annual salary divided by the number of pay periods per annum to arrive at a figure for that period. These payroll calculations are most easily tracked in spreadsheets.

To determine payroll withholdings, you’ll need to go through each employee’s gross wage and using the relevant weekly, fortnightly or monthly tax table, calculate the PAYG to be withheld from the gross amount. In addition to withholdings and deductions, you will need to factor in other aspects of payroll processing per paycheque. This means you may need to consider the following:

  • Allowances (not subject to PAYG withholding)
  • Superannuation contributions
  • Salary Sacrifice amounts
  • Child Support Agency deductions
  • PAYG withholding rates for employees with HELP, VSL, FS, SSS or TSL debts

Step 5: Pay payroll taxes

Part of processing your own payroll is calculating the tax that has to be withheld from employee pay. 

There are a wide range of options that need to be taken into consideration based on the information provided in the TFN declaration, along with taxation requirements on allowances and lump sum payments. These considerations are taken into account when using the relevant tax tables to determine the amount to be withheld.

Step 6: File and report your payroll

After distributing your employees’ payslips, you’ll be tasked with filing and reporting payroll to the Australian Taxation Office (ATO) and if applicable, local State Revenue Offices. To meet federal and state requirements, you’ll need to do the following:

  • STP Reporting (Single Touch Payroll): At the completion of each pay run you will need to report the payrun figures to the ATO – this includes (but is not limited to) Gross Wages, PAYG withheld and Superannuation.
  • PAYG Withholding: All employee PAYG withholdings are reported and paid to the ATO based on reporting frequency determined when you first registered as a PAYG withholder.
  • File State Payroll tax reports: If your Gross Wages exceed the State threshold you will need to calculate the payroll tax payable and remit to the relevant Office of State revenue by day 7 of the following month. If you employ people in more than one state you may need to report payroll tax in several jurisdictions.
  • File and pay Superannuation: You will need to lodge and pay superannuation contributions electronically, at a minimum, quarterly by day 28 of the month following the end of the quarter. You may need to lodge more frequently if required under an Award under which employees are paid.

Step 7: Keep well-maintained payroll records

A key piece of the payroll puzzle is keeping organised and accurate records. You’ll need to be able to reference past records, and that is only possible if you make an effort to keep all documents carefully catalogued. Payroll records must be retained for a period of 7 years.

Keep in mind that you will need to report new hires to the ATO via the TFN form. This process effectively verifies that each new employee is eligible to work in Australia, the basis on which they are employed, any higher education debt obligations and their entitlement to the tax-free threshold. You will need to gather the employee’s name and Tax File Number.

How to do payroll using payroll software

Step 1: Choose a payroll provider

When selecting the best payroll software provider for your needs, it’s important to consider ease of use, integrations, support, and bonus features. Ultimately, any software you choose is bound to streamline the data input process. It’s a simple matter of finding a program that’s as comprehensive as you need. Trusted software providers like QuickBooks Payroll make handling payroll a walk in the park.

Step 2: Set up payroll

The process of initially setting up payroll with software is similar to the manual method. You’ll need to make sure your business is properly set up with the ATO. You’ll also need to have your employees’ completed TFN forms to add into the system, where you then have the option to lodge them directly with the ATO once completed. With this information, you can enter your business and employee information. From there, the software handles all calculations for you and payroll processing becomes a breeze.

Watch our quick video to see how to get started with QuickBooks Payroll.

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Step 3: Review your first payroll

Go through your payroll to double-check that all information is correct and all calculations are accurate.

Step 4: Process your first payroll run

Once your payroll software has calculated all of your employee’s wages and withholding amounts, hit the “Finalise Pay Run” button, and you’re done. From there you will be able to download the payment file (for electronic wages transfers) and import this into your banking software for payment as well as lodge the STP report with the ATO. Payment of PAYG withheld, payroll taxes and superannuation will be done separately on relevant IAS/BAS lodgements, state payroll tax lodgements and superannuation payment processing.

Watch our video to see how to create a pay run in QuickBooks Payroll.

How to choose the best payroll system for your small business

No two payroll systems are the same, so it’s important you do your research before choosing a system. Here are a few things to look for:

  • Cloud software: ensure that you can make a pay run seamlessly anywhere, anytime.
  • Features: do your research on the features you need to best support your business; for example, automatic award rate calculations, or self-service apps for employees to manage leave etc.
  • Affordability: You want a service that is value for money when comparing against the features you need; costs will vary pending the features available. It’s also worth considering whether you want to pay monthly or be locked into annual contracts. 
  • Compatibility: You want a payroll service that works with the programs you already use, like time and attendance and accounting systems.
  • Customer service and support: Ensure the system you choose gives you access to great support when required.
  • Law compliance: Make sure your payroll service is compliant with local tax laws, including Single Touch Payroll.
  • Employee award rates: Ensure it is compatible with award rates - particularly important when managing casuals or contractors. 
  • Flexibility: If your business grows, will your payroll system scale with you?

Why choose QuickBooks Payroll software

If you run a small business—or any business—setting up a payroll system is essential. A payroll system makes it easy to accurately compensate your team on time. And these days, more and more companies are beginning to automate the payroll process. 

With software like QuickBooks Payroll powered by Employment Hero, you can save time and minimise errors at an affordable price point. With our payroll software, you can set up automatic payroll so it runs in the background for each pay period. Our online payroll software also provides tax penalty protection, free direct deposit services, and automatic payroll tax filing. 

QuickBooks Payroll key features include: 

  • Employee portal to manage staff leave and payslips
  • Employee mobile app
  • Timesheets
  • Single Touch Payroll reporting
  • Automated super payments
  • Leave management
  • Award rates
  • Rostering
  • Time and attendance tracking

QuickBooks Payroll accounting software allows you to: 

  • Keep your accounting simple by linking your accounts and storing all the important information in one place.
  • Pay your employees and contractors properly and on time.
  • Use features such as time-tracking and an attendance system.
  • Stay up to date on the most recent changes to tax codes and payroll rules.
  • Keep IT costs down by running all of your accounts from one place.
  • stay compliant with Single Touch Payroll and other government requirements.
  • Automate payroll, with automatic calculations for each pay run for deductions, such as tax and Superannuation

As a business owner, you likely want to spend as little time on the payroll as possible, yet the job needs to get done right every time. Stay on top of employee compensation by choosing the best payroll software for your company. Read more about the key benefits of payroll software for your small business.


Staying on top of your payroll is one of the greatest favours you can do for yourself and your business. Whether you choose to do it manually, with smart payroll software like QuickBooks Payroll, or with an outsourced professional, tackle your payroll with confidence. For more helpful information like this, visit QuickBooks Australia YouTube channel.

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