How to pay wages in Australia

Every business needs to pay its employees, but many companies struggle with payroll: a recent survey by the Australian Payroll Association revealed that a staggering one in three Australian businesses make mistakes when paying employees every month¹.

All the regulations governing pay in Australia can make paying wages a real headache. With that in mind, let’s look at how you can avoid making the same mistakes and how ADP payroll solutions can help you not only save time and money but also provide a better experience for your employees.

Pay types

Let’s start with the basics. When it comes to paying wages in Australia, employees generally fall into one of the following pay structures:

• Salary: Pay at a fixed regular amount.
• Hourly wage: Pay based on the number of hours worked.
• Commission: Pay based on a percentage of sales.
• Piece rates: Pay based on the amount of work completed.

But there are some additional types of pay, including:

• Overtime pay: Pay for extra hours worked.
• Allowances: Pay for specific purposes, e.g. travel, uniforms and tools.
• Bonuses: Additional pay for achieving specific goals.
• Penalty rates: Additional pay for working unsociable hours, e.g. weekends or holidays.
• Benefits: Non-cash compensation that may include health insurance, retirement plans and paid leave (often part of a remuneration package).
• Employee Share Option Plans (ESOPs): Non-cash compensation that gives employees the right to purchase company shares at a set price (often part of a remuneration package).

Pay rates

Wage rates in Australia are governed by several factors, including the national minimum wage, modern awards and registered agreements. However, an employee’s pay will naturally also depend on their employment type. For example:

Full-time and part-time employees have defined hours and are entitled to benefits such as paid leave. Their pay rates are usually determined by a modern award or enterprise agreement.

Casual workers don’t have guaranteed hours and receive a casual loading to offset the lack of benefits such as sick leave.

Shift workers might receive penalty rates for evening, night, or weekend shifts.

Apprentices and trainees have special pay rates that reflect their ongoing training and education.

Minimum wage

All Australian employees are entitled to at least the minimum wage. However, most people who work in Australia are covered by a modern award or registered agreement that includes a minimum wage based on industry, occupation and experience.

The National Minimum Wage applies to employees not covered by an award or registered agreement. As of 1 May 2024, the current national minimum wage in Australia is $23.23 per hour or $882.80 per 38-hour week (before tax)².

Adult rate

The adult rate is the minimum wage for workers aged 21 and over. Employers cannot pay less than the minimum wage unless an employee is under 21 years of age, an apprentice, or on a supported wage.

Junior rate

The junior rate is the minimum wage for workers under 21. Juniors typically earn a percentage of the adult rate, often around 70 percent. You can usually find it in the relevant industry or occupation award or agreement.

Awards

Modern awards set out the minimum wages and conditions that employees are entitled to in different industries and jobs. There are more than 100 industry and occupation awards that cover a wide range of sectors — from hospitality to construction and retail.

Employees covered by an industry-specific award receive specific award rates. These rates are detailed in the Fair Work Ombudsman’s Pay Guides, which help employers determine the correct pay rates.

Enterprise agreements

About one-third of Australian employees are covered by enterprise agreements³. Much like awards, they set out terms and conditions for employees as well as entitlements provided by the employer. Unlike modern awards, however, they relate to specific businesses or organisations.

Enterprise agreements come in various forms, including single enterprise agreements, multi-enterprise agreements and greenfields agreements. They typically stipulate wages that are higher than award rates.

Top tip: Use the Fair Work Ombudsman’s Pay Calculator to ensure you’re meeting the minimum wage requirements and applying award rates correctly.

Paying employees

Paying your employees the right amount at the right time is non-negotiable. Not only does it build trust and help maintain a good working relationship, but it also keeps your company compliant. Let’s cover three key areas.

Payment methods

When it comes to paying employees, you have three main options:

• Direct deposit
• Cash
• Cheque

Paying employees directly into their bank account by electronic funds transfer (EFT) is the most common payment method in Australia. Once set up, this method makes payments easy and logs transactions automatically.

Cash and cheques are less common as they require meticulous record-keeping and manual processing. There are several other options, including payroll cards and mobile wallets, but these are still relatively new.

Although it should go without saying, you can’t pay your employees with goods or services, such as food. Australian law requires monetary compensation, so in-kind payments simply won’t cut the mustard.

Pay schedule

Most awards and enterprise agreements include how often you need to pay your employees. As an employer, you have to adhere to these payment frequency guidelines. If you can’t find this information in an award or agreement, or your employee isn’t subject to one, then you must pay them at least monthly.

Pay slips

Providing detailed pay slips that clearly state gross pay, deductions and net pay, is vital for both transparency and compliance. Every time you pay an employee, you also need to provide a pay slip within one working day.

You can choose to send out digital pay slips, e.g. using payroll software, or paper pay slips. No matter which format you choose, however, all pay slips need to have the same information, including:

• Employer’s and employee’s name
• Employer’s Australian Business Number (ABN)
• Pay period
• Date of payment
• Gross and net pay
• Hourly rate and number of hours worked (if paid hourly)
• Any loadings, allowances, bonuses, penalty rates, etc.
• Any deductions with amounts and details
• Any superannuation contributions paid with amounts and details

Taxes and contributions

As an employer, you need to be aware of your tax obligations when paying employees. And that’s not always easy. After all, there’s a lot to consider — from goods and services tax to business activity statements and the superannuation guarantee. Let’s go over the essentials.

Pay As You Go (PAYG) withholding

Employers must withhold certain amounts of their employees’ pay to cover income tax liabilities. This helps employees meet income tax obligations without having to pay a large lump sum at the end of the financial year.

Withheld amounts are based on the employee’s total taxable income (including wages, salary, bonuses and other benefits) and tax file number (TFN) declaration. These amounts are then paid directly to the Australian Taxation Office (ATO) either monthly or quarterly.

Top tip: The ATO provides tax tables and calculators to help you determine the correct amounts to withhold.

Superannuation Guarantee (SG)

Employers must contribute a percentage of their employees’ earnings (currently around 11% of basic pay⁴) into a superannuation fund to provide for their retirement. All employees are covered by the superannuation guarantee under the National Employment Standards (NES).

As an employer, this means you have to pay superannuation contributions at least every three months for all employees over 18 years old (or under 18 years old if they work more than 30 hours a week). You also have to pay super to all types of workers, including full-time, part-time and casual employees.

Top tip: The Australian Taxation Office has lots of useful information and help on paying super.

Single Touch Payroll (STP)

Employers have to report their employees’ salaries and wages, PAYG withholding, superannuation information and more to the ATO every time they pay their employees. Fortunately, Single Touch Payroll (STP) can make this process much easier.

With STP-enabled payroll software, you can send all the necessary information directly to the ATO every time you pay your employees. Some businesses are even required to use STP-enabled software, so it’s a good idea to check that STP reporting is included in your payroll solution.

Payroll tax

Employers also need to pay payroll tax, which is a state-based tax on wages paid to employees. Each state and territory sets its own thresholds, rates and exemptions so it’s important for companies to be aware of different obligations in different regions.

You have to register for payroll tax if your total wage bill exceeds the threshold for the state or territory where your business is located. For example, in Queensland, businesses are required to register for payroll tax when they pay more than $25,000 a week in Australian taxable wages⁵.

Payroll process

Establishing a comprehensive payroll system that suits your business is vital, but it can be tricky to know where to start. Here are eight simple steps to help you set up your own payroll process:

1. Choose a payroll solution that supports Single Touch Payroll (STP) reporting and is compliant with Australian Tax Office (ATO) regulations.
2. Collect employee information, including names, addresses, tax file numbers (TFNs) and superannuation fund details.
3. Calculate employee pay based on salary agreements or hours worked, including overtime and bonuses.
4. Deduct pre-tax contributions like superannuation and PAYG income tax, taking into account the tax-free threshold and any tax offsets.
5. Process post-tax deductions, e.g. taxes on benefits like allowances and fringe benefits tax, as well as any state or territory payroll taxes.
6. Generate and distribute payslips with detailed information on gross pay, deductions and net pay.
7. Submit reports to the ATO each payday detailing employee payments, super contributions and tax withheld.
8. Keep detailed records of all payroll activities, including hours worked, wages paid, taxes and deductions.

Record-keeping

Accurate record-keeping not only helps you avoid penalties but also keeps your business running smoothly. In Australia, employers must keep records of employee details, wages, hours worked, leave balances and superannuation for at least seven years⁶. These records have to be in English, legible and ready for the Fair Work Inspector to review.

Top tip: The Fair Work Ombudsman has lots of useful templates and information to help employers comply with their record-keeping obligations.

Compliance

As an employer, you need to make sure that you’re complying with all the relevant regulations, including awards and agreements. STP-compliant payroll software is the easiest way to ensure regulatory compliance and reduce the risk of penalties.

Compliance can be a minefield, and some of the most common compliance pitfalls include incorrectly classified employees, missing payslip details and incorrect deductions. Failing to withhold the correct amounts or send them to the ATO on time, for example, will lead to penalties for non-compliance.

How ADP payroll software can help

The right payroll solution not only makes it easy to pay your employees both accurately and on time, but it also streamlines your reporting to the ATO, generates and distributes pay slips within one working day of payment, and maintains up-to-date records on pay, leave, and hours worked.

ADP payroll solutions allow you to manage employee information and payroll from a single cloud-based platform. Whether you’re a small business or large enterprise, we have the payroll solutions to suit your unique needs — including 24/7 access and reliable customer support.

ADP payroll software complies with Australian employment laws and is designed to handle everything from Single Touch Payroll (STP) and PAYG to superannuation and compliance. Make your payroll efficient, compliant, and effective with ADP.