Australian payroll STP and PAYG, followed one pay run at a time

An Australian pay run has three outputs that the Australian Taxation Office (ATO) can see almost in real time: tax withheld from the employee, a digital report of the payment, and a superannuation contribution. The first two have been standard for several years. The third moved from a quarterly cycle to a per-payday cycle on 1 July 2026 under the reform the ATO calls Payday Super.

The employer’s sequence on each payday therefore looks like this: calculate gross pay, work out pay as you go (PAYG) withholding, pay the net amount to the employee, lodge the Single Touch Payroll (STP) Phase 2 report no later than the payment date, then send super for that pay so the fund receives it within the deadline. The withheld tax itself is paid to the ATO later, on a schedule set by how much the employer withholds in a year.

Two further layers sit outside the federal system. Payroll tax is a state tax (New South Wales charges 5.45% for 2026-27 once annual taxable wages pass AUD 1,200,000), and workers’ compensation insurance is arranged under state schemes. Neither is reported through STP, and both need their own returns or wage declarations.

For a company abroad hiring its first Australian employee, the practical consequence is that payroll cannot be run as an overseas monthly batch with local figures typed in afterwards. The employer of record in Australia must be registered with the ATO, hold STP-enabled software and have a clearing route to super funds.

PAYG withholding is calculated with the formulas in ATO Schedule 1 (NAT 1004), which the ATO republished on 17 June 2026 with coefficients for 2026-27. Payroll software applies the formula for the employee’s scale; most resident employees who claim the tax-free threshold fall under Scale 2. The formula works on weekly earnings, so a monthly or fortnightly payment is converted to a weekly equivalent first and the result is converted back.

The monthly conversion follows a fixed ATO routine. Add one cent if the monthly amount ends in 33 cents, multiply by 3/13, drop the cents and add 99 cents. Apply the weekly coefficients, round to the nearest dollar, multiply by 13/3 and round again. For a monthly gross of AUD 9,166.67 (an annual salary of AUD 110,000) the weekly equivalent is AUD 2,115.99, which falls in the band where the Scale 2 formula is 0.32x minus 181.7319. That gives AUD 495 a week and AUD 2,145 withheld for the month.

The formulas include the 2% Medicare levy and reflect the 2026-27 resident rates, where the lowest taxed band was cut on 1 July 2026, from 16% to 15%, with a further cut to 14% legislated for 1 July 2027. Withholding is designed to approximate the annual liability, so small differences are settled when the employee lodges a tax return. In the AUD 110,000 case, twelve monthly deductions total AUD 25,740 against an assessed AUD 25,720 of income tax and Medicare levy, an AUD 20 over-withholding that comes back as a refund.

Withholding depends on the information the new starter gives at onboarding: whether they are an Australian resident for tax purposes, whether they claim the tax-free threshold, and whether they carry a study loan. Foreign residents do not pay the Medicare levy and have no tax-free threshold, so their scale differs. The rates themselves are published on the ATO Schedule 1 coefficients page.

An STP Phase 2 report sends the ATO a breakdown of each employee’s pay on or before the day it is paid. Phase 2 requires disaggregated gross, which means the payroll system cannot send one lump figure for earnings. It must split the amount into its components.

• Gross salary or wages for ordinary hours
• Paid leave, reported under six leave types
• Allowances, overtime, and bonuses and commissions as separate amounts
• Directors’ fees and lump sum W where they apply
• Salary sacrifice amounts
• From 1 July 2026, qualifying earnings and the super liability for the pay

The last item is the link between STP and Payday Super. Because each STP lodgement now shows qualifying earnings together with the super owed, the ATO can compare what the employer said it owed with what the fund later receives. A gap between the two is visible much sooner than under the old quarterly system. The ATO’s disaggregation of gross guidance lists the reporting categories in full.

At the end of the financial year, which runs from 1 July to 30 June, the employer makes an STP finalisation declaration by 14 July. That declaration marks each employee’s year-to-date figures as final so they flow into the employee’s tax return.

Withheld tax reaches the ATO on a timetable set by the employer’s annual withholding size. Reporting through STP on payday does not by itself pay the tax. The money follows through the activity statement system.

An employer that withholds AUD 25,000 or less a year is a small withholder and generally pays quarterly. A medium withholder, between AUD 25,001 and AUD 1 million a year, pays monthly through its business or instalment activity statement. The ATO explains both on its activity statement timing page. Employers withholding more than AUD 1 million a year are large withholders with much shorter payment windows; check the current large-withholder rules with the ATO before relying on a specific day count.

The withholder category belongs to the legal employer, not to the individual employee. A single hire paid AUD 110,000 has about AUD 25,740 withheld in a year, which on its own would sit just over the small-withholder line. Where an employer of record runs payroll for many clients, its combined withholding sets its category and the remittance rhythm follows from that. The client does not need its own withholding registration for that employee, because the obligation sits with whichever entity pays the wages.

Separating the withheld money from operating cash on payday is a simple control. The STP report has already told the ATO what was withheld, so the activity statement figure has to match it when it is lodged.

Payday Super requires the employer to pay the superannuation guarantee for each pay so that the fund receives it within 7 business days, counted from the date the wages go out. The ATO calls that day the qualifying earnings (QE) day. Before 1 July 2026 contributions were settled quarterly; earnings paid up to 30 June 2026 still follow the old quarterly rules.

For 2026-27 the guarantee is set at 12% of qualifying earnings, and the ATO has confirmed it stays at 12% from 1 July 2027. Qualifying earnings cover ordinary time earnings, all commissions and salary-sacrificed super. Contributions stop for the year once an employee’s qualifying earnings reach the annual maximum contribution base of AUD 270,830, which replaced the quarterly cap of AUD 62,500 used in 2025-26. Take an employee paid AUD 300,000 a year in twelve equal monthly instalments of AUD 25,000: the first ten pays attract super in full, the eleventh attracts it on AUD 20,830 only, and the twelfth attracts none. Our separate explainer on the 12% superannuation guarantee covers the rate and base in more detail.

The ATO deadline rules contain several extensions. The window stretches to 20 business days for the first contribution after someone joins, and when the employer pays a particular fund for the very first time. A payment made outside the normal cycle takes the deadline of the following regular payday. Exceptional circumstances can justify up to 20 business days, Overlapping deadlines are bunched onto whichever falls later, and weekends and national public holidays are not counted as business days.

Late or missing amounts now attract a reworked super guarantee charge with four parts: each employee’s shortfall, notional earnings that compound daily by reference to the general interest charge, an uplift for administration that can reach 60%, and in some cases a choice loading. For 2026-27, the first year, the ATO has promised a supportive approach. The ATO’s free clearing house for small businesses shut for good on 1 July 2026, so employers need another way to pay. The Payday Super changes from July 2026 are covered step by step in a companion article.

Under an arrangement with Employer of Record Australia, your recruit goes onto the payroll of EOR Australia, which becomes the legal employer as employer of record. Its ATO registrations, STP software and super payment route therefore carry the obligations described above, while your company still directs the work each day and signs off the pay inputs.

In practice the division of work is straightforward. You confirm salary changes, bonuses, commissions and leave before the payroll cut-off, because each of those items changes both withholding and qualifying earnings. We calculate PAYG, lodge the STP Phase 2 report, send super within the Payday Super window, handle state payroll tax returns and keep the employee records. At the start, we also collect the documents that drive the first pay: the tax file number declaration, the employee’s choice of super fund, and a signed contract, and we give the new starter the Fair Work Information Statement. You receive an invoice covering gross pay, employer on-costs and the service fee.

Our service charge is from USD 560 per month per person; converted at European Central Bank reference rates for 24 September 2026, that is roughly AUD 797. The fee is separate from salary, super, payroll tax and workers’ compensation, which are passed through at cost. Our full scope, from onboarding to exit, is listed on our Australia EOR services page.

Timing inputs is the client task that matters most after July 2026. A commission approved two days after the pay run becomes an out-of-cycle payment with its own super deadline, and a leave record corrected late forces an STP amendment. Fixed monthly cut-offs keep both situations rare.

Q01Does STP Phase 2 replace PAYG payment summaries for employees?+

A.Yes. Under Single Touch Payroll the employer reports each pay to the ATO and makes a finalisation declaration by 14 July, after which the finalised year-to-date figures flow into the employee’s own tax return.

Q02Which PAYG scale applies to a new resident employee claiming the tax-free threshold?+

A.Scale 2 of ATO Schedule 1 applies to most Australian tax residents who claim the tax-free threshold. The coefficients for 2026-27 were published on 17 June 2026.

Q03Is super reported through STP now that Payday Super has started?+

A.Yes. From 1 July 2026 STP reports must include each employee’s qualifying earnings and the super liability for the pay, which lets the ATO match reported liabilities against contributions received by funds.

Q04How long does a fund have to receive a new employee’s first super payment?+

A.A new starter’s first contribution, and an employer’s first payment to a fund it has not dealt with before, each get 20 business days under ATO rules. Later contributions follow the standard 7 business day deadline after each payday.

Q05Are payroll tax and workers’ compensation part of STP?+

A.No. Payroll tax is a state tax lodged with each state’s revenue office (Revenue NSW in New South Wales), and workers’ compensation premiums are paid under state insurance schemes. Both sit outside the ATO’s STP system.