Paying your staff sounds simple. You work out their hours, pay them, and move on. But payroll in Australia has a lot of rules attached to it. And when those rules aren’t followed correctly, businesses end up with fines, back payments, and complaints they didn’t see coming.
The thing is, most payroll mistakes are not done on purpose. They happen because the rules changed and no one noticed, or because the process being used is outdated. This guide goes through the most common payroll mistakes and explains what to watch out for.
Getting the Employee Classification Wrong
There is a legal difference in Australia between an employee and a contractor. Treating someone as a contractor when they’re actually an employee is one of the most common mistakes, and it has real consequences.
Here is how to tell the difference:
- An employee works under your instructions, uses your equipment, and is part of how your business runs day to day
- A contractor works for themselves, uses their own tools, and takes on their own financial risk
- Having an ABN does not automatically make someone a contractor
- The ATO looks at the actual working relationship, not just what the paperwork says
Paying the Wrong Rate
Pay rates in Australia are set by modern awards and go up every year. If your employees are covered by an award, you need to pay the right rate for their job type and hours. Paying less than the award rate, even without realising it, is still considered underpayment.
Common rate mistakes include:
- Paying the base rate but missing the extra rates for weekends or public holidays
- Not adding the 25% loading for casual employees
- Still using last year’s rates after the annual increase
- Using the wrong award for the type of work your employee does
If you’re not sure which award covers a role, the Fair Work website has a tool you can use to check.
Superannuation Errors
Super is something the ATO keeps a close eye on. The superannuation guarantee rate is 11.5% for the 2024-25 financial year and goes up to 12%. Paying the wrong rate or paying late are both problems.
Key things to know about super:
- Super must be paid at least every quarter
- The money needs to actually land in the super fund by the due date, not just be sent
- If it’s late, you’ll owe the super guarantee charge, which includes the shortfall amount, interest, and an admin fee
- Some businesses miss paying super on overtime or bonuses, depending on the award or contract terms
Single Touch Payroll Mistakes
Single Touch Payroll, or STP, is required for all employers in Australia. Every time you process payroll, that information gets sent to the ATO through your payroll software. If you make an error in one pay run, it carries through to the next ones because the figures build up over time.
Common STP mistakes include:
- Sending the wrong year-to-date figures
- Not finalising employee records at the end of the financial year
- Not reporting when an employee stops working for you
- Using software that hasn’t been updated to STP Phase 2
STP Phase 2 means employers need to report more detail than before, including the type of income being paid. Having your accounting software setup done properly from the start makes this a lot easier to manage.
Leave Entitlement Mistakes
Leave entitlements under the National Employment Standards are:
- Full-time employees: four weeks of annual leave per year
- Shift workers: may be entitled to five weeks
- Part-time employees: leave based on their actual hours worked
- Casual employees: no annual leave, but other protections apply
The mistakes usually happen when leave is:
- Worked out on the base rate only instead of the correct earnings rate
- Not building up correctly for part-time staff
- Paid out when an employee leaves but the amount is calculated wrong
- Cashed out without the proper written agreement in place
If you’re tracking leave in a spreadsheet, small errors are easy to miss and they add up over time.
PAYG Withholding Issues
Every employer has to deduct the right amount from employee wages each pay cycle and send it to the ATO. Deduct too little and the employee ends up short at the end of the year. Deduct too much and the employee is missing money they should have received each pay.
The amount you deduct depends on:
- Whether the employee has filled in a TFN declaration
- Their residency status
- Whether they’ve applied for a lower withholding rate
- Any extra withholding the employee has asked for
If an employee hasn’t given you their TFN details, you need to deduct at the highest rate. Keeping on top of this is much easier when your bookkeeping is up to date, because errors are easier to spot and fix early.
Not Keeping Proper Payroll Records
Australian law says you have to keep payroll records for seven years. These records need to be available if Fair Work or the ATO ever asks for them.
Records you are required to keep include:
- Employee name and job type
- Pay rate and hours worked
- Gross and net pay each period
- Leave balances
- Super contributions and amounts withheld
A lot of small businesses don’t think about this until something goes wrong. Good records also protect you if a past or current employee questions what they were paid. The clearer your records, the easier those situations are to sort out.
Getting Termination Pay Wrong
When an employee leaves, their final pay is more complicated than a normal pay run. Depending on why they’re leaving and how long they’ve worked for you, the final payment may need to include:
- Unused annual leave
- Pro-rata long service leave depending on state rules
- Redundancy pay if it was a genuine redundancy
- Pay in lieu of notice if they didn’t work out their notice period
Each of these is treated differently for withholding purposes. For example, genuine redundancy payments up to a certain amount have no withholding applied. Termination pay mistakes are one of the most common reasons employers end up with a complaint lodged to the Fair Work Ombudsman.
Reporting and State Wage Obligations
There are reporting obligations beyond the regular pay run that are easy to fall behind on. Withholding amounts need to be reported and paid through your BAS lodgement each month or quarter depending on the size of your payroll.
Things to be aware of with state wage obligations:
- Some employers have a state-based wage obligation once their total Australian wages go over a set threshold
- The threshold is different in each state and territory
- In Victoria the threshold is $700,000 in total annual wages
- Missing this obligation leads to penalties and interest
A lot of small businesses sit under these thresholds, but if you’re growing fast or operating in more than one state, it’s worth knowing where you sit.
Staying on Manual Processes Too Long
A lot of payroll mistakes happen because businesses are still doing things by hand when software could do it more accurately. The bigger your team gets, the harder it is to manage payroll manually without something slipping through.
Signs it’s time to move away from manual processes:
- You’re spending hours each pay cycle checking figures
- Errors keep coming up in the same places
- You’re not confident the leave or super calculations are right
- Your team has grown and the spreadsheet is getting unwieldy
Software only works properly if it’s been set up correctly though. A Xero training session can help you get across how to use the system properly, not just click through the same steps each week without really understanding what’s happening.
Keeping Up Throughout the Year
Payroll is not something you can set and forget. It needs attention every pay cycle and at certain points during the year. Key dates to keep track of include:
- Quarterly super due dates
- July award rate increases
- Monthly or quarterly BAS due dates
- End of financial year STP finalisation
A simple calendar with these dates written down goes a long way. If payroll is eating up too much of your time or you’re second-guessing yourself a lot, it might be worth looking at how your payroll is being managed.
Most Payroll Mistakes Are Fixable Once You Know What to Look For
Most payroll problems come from the same few causes. The rules changed and no one updated the process. The software wasn’t set up properly. Records weren’t kept consistently. None of these are unusual, and none of them are impossible to fix. What helps most is having a clear process, complete records, and a habit of checking the key things at regular intervals.
Payroll in Australia covers a lot of ground and it does take time to get across all of it. If you’re not fully confident in your current setup or you’ve spotted a few things in this guide that need attention, the team at Elite Plus Accounting works with businesses across Australia on exactly this kind of thing.
Frequently Asked Questions
How often does the superannuation guarantee rate change?
What happens if I pay super late?
Do casual employees get super?
What payroll records do I need to keep?
What is the difference between PAYG withholding and state wage obligations?
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