Payroll Compliance Checklist for Australian Small Businesses

Every pay run needs to be processed accurately before payment is made. Rushing this step is where most payroll errors start.

• Confirm hours worked for the period - including any overtime, leave taken or public holidays
• Check the correct pay rate is applied, including any Award allowances or penalty rates
• Verify PAYG withholding is calculated correctly based on the employee's tax file number declaration
• Calculate superannuation at 12% of ordinary time earnings (changing to "qualifying earnings" from 1 July 2026)
• Review the pay run summary before finalising - check gross pay, tax withheld and super match what you expect
• Pay employees on or before the agreed pay day

Single Touch Payroll is mandatory for all employers in Australia. Every time you run a pay, the payroll information must be reported to the ATO on or before the payment date. Xero Payroll handles this automatically when you finalise a pay run - but you need to make sure it has actually been submitted, not just saved.

• Confirm the STP submission status in Xero after each pay run
• Check for any error notifications from the ATO - these need to be resolved promptly
• At the end of the financial year, finalise your STP data in Xero so employees can access their income statements in myGov
• The EOFY finalisation replaces the old payment summary process - do not issue paper payment summaries

Super is not just a payroll calculation - it is a payment obligation with two different sets of rules depending on when you are reading this.

Until 30 June 2026 - current quarterly rules:

• Super must be paid by 28 October (Q1), 28 January (Q2), 28 April (Q3) and 28 July (Q4)
• Payments must be received by the employee's nominated super fund by the deadline, not just sent
• Use a SuperStream-compliant clearing house - Xero Payroll handles this - to pay multiple funds
• The ATO Small Business Superannuation Clearing House closes 1 July 2026. If you currently use it, move to Xero Payroll or another alternative before then
• Missing the quarterly deadline triggers the Super Guarantee Charge, which is not tax deductible

From 1 July 2026 - Payday Super:

• Super must be paid on every payday, at the same time as wages
• Contributions must be received by the employee's super fund within 7 business days of payday
• The calculation basis changes from ordinary time earnings to "qualifying earnings" (QE), which is broader and includes salary sacrifice amounts
• The Super Guarantee Charge applies per pay period under the new system, meaning late payments attract penalties more frequently
• Xero Payroll is being updated to support Payday Super - make sure your Xero is up to date before 1 July 2026
• If you miss a payment, voluntary disclosure to the ATO before they contact you results in a lower penalty

PAYG withholding is the tax you deduct from employee wages and send to the ATO on their behalf. The amount is calculated using the ATO's tax withholding tables based on the employee's income and tax file number declaration. It is reported through STP and paid when you lodge your BAS or IAS.

• Withhold the correct amount using the ATO's current tax withholding tables
• If an employee has not provided a TFN, withhold at the top marginal rate (47%)
• Report PAYG withholding through STP on each pay day
• Pay the withheld amounts to the ATO when your BAS or IAS is due - monthly or quarterly depending on your withholding amount
• Reconcile your PAYG withholding at year end against your STP data to make sure everything matches

Leave entitlements are a legal obligation, not optional. Getting these wrong is a common source of Fair Work complaints for small businesses.

• Full-time and part-time employees accrue annual leave at 4 weeks per year under the National Employment Standards
• Personal leave (sick and carer's leave) accrues at 10 days per year for full-time employees, pro-rated for part-time
• Casuals do not accrue leave but are entitled to a casual loading - currently 25% under most Awards - instead
• Track leave balances in Xero Payroll and reconcile them regularly
• When an employee leaves, any accrued and unused annual leave must be paid out in the final pay

Modern Awards are legal documents set by the Fair Work Commission that specify minimum pay rates, penalty rates, allowances and conditions for employees in specific industries and occupations. Most small business employees are covered by a Modern Award.

If an Award applies to your employees, you must pay at least the Award minimum rates - paying less, even if the employee agrees to it, is wage theft under Australian law. Awards are updated regularly, including an annual minimum wage review each July.

• Identify which Award or Awards cover your employees using the Fair Work Award Finder at fairwork.gov.au
• Check the minimum pay rates for each classification in the Award
• Check whether penalty rates, overtime or allowances apply to your employees' work patterns
• Review your pay rates each July when the Fair Work Commission updates the national minimum wage and Award rates

For specific Award advice, visit fairwork.gov.au or contact the Fair Work Infoline on 13 13 94.

When an employee leaves - whether they resign, are made redundant, or are dismissed - their final pay has specific requirements. Getting this wrong can result in a Fair Work complaint or an ATO issue.

• Pay all outstanding wages for hours worked up to the last day
• Pay out any accrued and unused annual leave at the employee's ordinary pay rate
• Check whether long service leave applies based on the employee's length of service and your state
• Calculate any redundancy pay if applicable under the National Employment Standards or the relevant Award
• Withhold the correct amount of tax on termination payments - different rules apply to different components
• Process the termination in Xero Payroll and report it through STP
• Super is still payable on the final pay - check which components qualify as ordinary time earnings (or qualifying earnings from 1 July 2026) and which do not