Payroll software for small business: what to look for

Published Friday 17 April 2026

Table of contents

• Payroll is vital for your business
• What to consider for payroll
• What features to look for in payroll software
• The cost of compliance
• Single Touch Payroll and Australian compliance requirements
• Four key benefits of payroll software
• How to choose the right payroll software for your business
• FAQs on payroll software

Key takeaways

• Prioritise payroll software with Single Touch Payroll reporting, automatic tax calculations, and superannuation management to meet Australian compliance requirements and avoid costly penalties that can reach 200% of unpaid amounts.
• Choose cloud-based payroll software to access your system from anywhere, enable multiple users like bookkeepers or accountants, and protect your data with encryption and remote storage.
• Match your software features to your business size, starting with basic payroll for 1-5 employees and adding employee self-service, leave management, and advanced reporting as you grow beyond 10 employees.
• Calculate the true cost by comparing monthly subscription fees (typically $5-20 per employee) against the time you currently spend on manual payroll tasks and potential compliance penalties.

Payroll is vital for your business

Payroll software automates employee pay calculations, tax withholding, and compliance reporting. It replaces manual spreadsheets and reduces the time you spend on repetitive admin tasks.

Many small businesses handle payroll manually or outsource it to accountants. Payroll software can automate many payroll calculations, reporting, and record-keeping tasks, while you remain responsible for compliance.

You can manage payroll manually in several ways:

• Spreadsheet tracking: calculating pay and tax in Excel or Google Sheets
• Outsourcing: paying an accountant or bookkeeper to handle payroll
• Payroll services: using a dedicated provider to process payments

This guide helps you decide if payroll software can save you enough time and money to justify the cost.

What to consider for payroll

Payroll management covers more than paying employees. It includes every task that affects compliance, reporting, and costs.

Core payroll responsibilities include:

• Employee payments: processing salaries, hourly wages, bonuses, commissions, and overtime
• Tax obligations: withholding PAYG tax and reporting to the ATO
• Superannuation: calculating and paying super contributions on time
• Leave tracking: managing annual leave, sick leave, and entitlement balances
• Record keeping: documenting employment dates, pay rates, and payment history
• Expense processing: reimbursing staff for approved business expenses

These tasks take time and expertise, so payroll can be a major cost for your business.

What features to look for in payroll software

The right features transform payroll from a time-consuming task into an automated process. Focus on compliance essentials first, then consider features that save you time.

Must-have features for Australian businesses

Every payroll solution should include these essential capabilities to meet Australian compliance requirements:

• Single Touch Payroll (STP) reporting: automatic reporting to the ATO each pay run
• Automatic tax calculations: PAYG withholding based on current ATO rates
• Superannuation management: calculate contributions and pay via SuperStream
• Leave tracking: manage annual leave, sick leave, and other entitlements
• Payslip generation: create and distribute payslips automatically

Features that save you time

Beyond compliance essentials, look for automation that reduces manual work. These features can significantly cut the time you spend on payroll each period:

• Employee self-service: let staff update details and submit leave requests
• Automated pay runs: schedule recurring payments for salaried employees
• Bank file generation: create ABA files for batch payments
• Reporting: generate summaries for BAS, EOFY, and management review

Integration and connectivity

Your payroll software should connect with other business systems to avoid duplicate data entry and manual transfers. Look for integrations with:

• Accounting software: sync payroll data with your general ledger
• Time tracking apps: import hours worked automatically
• HR systems: share employee data without duplicate entry
• Banking platforms: process payments directly from the software

The cost of compliance

Payroll compliance means meeting your legal obligations for taxation, superannuation, employment laws, and government reporting. Errors can result in significant penalties.

For example, lodging a Superannuation Guarantee Charge (SGC) statement late can attract a significant penalty. According to the ATO, the maximum penalty is 200% of the SGC amount, and these costs can add up quickly for small businesses.

Manual payroll can be time-consuming, particularly as employee numbers and compliance complexity increase.

As a small business owner, you often juggle multiple roles. Each of these responsibilities competes for your time and attention:

• Director: making strategic decisions
• Bookkeeper: managing financial records
• HR manager: handling employee relations
• Sales lead: generating revenue

Each hour spent on payroll is time away from growing your business.

To decide if payroll software is worth it, compare your current compliance costs with the cost of the software.

Single Touch Payroll and Australian compliance requirements

Single Touch Payroll (STP) is the ATO's digital reporting system for employee tax and superannuation information. It has been mandatory for all Australian businesses since 1 July 2019.

Each time you run payroll, you must send this data directly to the ATO. As of 2022, this requirement was expanded to STP Phase 2 to include additional payroll information. STP-enabled payroll software can send the required information to the ATO and help reduce manual reporting, but compliance still depends on you entering and maintaining accurate data.

Four key benefits of payroll software

Cloud-based payroll software runs online rather than on individual computers. This gives you flexibility and security that desktop solutions cannot match.

1. Anytime, anywhere access

Cloud-based payroll lets you log in from any device with an internet connection. If your computer crashes, your data stays safe online because it's stored remotely rather than on a single device. Just sign in from another machine and continue where you left off.

2. Multiple access

Invite your bookkeeper or accountant into your payroll system to help manage it remotely from wherever they are.

3. Data security

Cloud-based payroll software uses strong encryption to protect sensitive employee and payment data. Many providers also apply additional security controls, though you should verify your provider's specific security, backup, and access-control practices.

If an office device is lost or stolen, your payroll data remains protected. You avoid the risk of financial details being compromised.

4. Work from anywhere

Need to check some figures at the weekend when the office is closed, or while away on a business trip? Just log in remotely at any time and access what you need.

Cloud-based payroll software gives you all the features of traditional products, plus the flexibility of the cloud. You're no longer tied to your computer or office.

How to choose the right payroll software for your business

Choosing payroll software requires matching features to your specific situation. Your business size, budget, and growth plans all influence which solution fits best.

Match software to your business size

Different businesses need different capabilities. Here's a general guide based on employee count:

• 1–5 employees: basic payroll with STP reporting and super payments
• 5–10 employees: add employee self-service and leave management
• 10–20 employees: consider advanced reporting and multi-user access
• 20 or more employees: look for rostering integration and custom pay rules

Assess your budget and pricing options

Payroll software costs vary widely depending on the provider and features included. Consider these common pricing models:

• Monthly subscription: predictable costs that vary by provider and plan
• Per-employee pricing: costs scale with your team size
• Bundled pricing: some accounting software includes payroll at no extra cost

Factor in setup fees, training costs, and any charges for additional users. Consider user limits and pricing structure to determine which option is most cost-effective for your business.

Evaluate support and training offerings

Good support reduces implementation headaches and helps you get value from the software faster. Look for these support options:

• Onboarding assistance: guided setup to get you running quickly
• Training resources: videos, guides, and webinars for ongoing learning

Make payroll work for your business, not against it

Payroll software can save you money by automating compliance and reducing manual admin. By automating compliance, reducing manual admin, and giving you a real-time view of your finances, the right software more than pays for itself. It frees you up to focus on what you do best: running and growing your business.

Get one month of Xero free and see how easy it is to manage your payroll and accounting in one place.

FAQs on payroll software

Here are answers to common questions about choosing and using payroll software for your business.

Is payroll software suitable for small businesses?

Yes, payroll software can benefit businesses of all sizes. Even with just one or two employees, the software automates tax calculations, STP reporting, and super payments, reducing the time you spend on compliance tasks.

How much does payroll software cost?

Costs vary by provider and plan. Most solutions charge a monthly subscription fee, either as a flat rate or per employee. Expect to pay between $5 and $20 per employee per month, though bundled accounting packages may include payroll at no extra cost.

Can I switch payroll software providers?

Yes, you can switch providers. Most payroll software allows you to export your employee data and payment history. Check with your new provider about data migration support during setup.

Do I still need an accountant if I use payroll software?

Payroll software handles calculations and reporting, but many businesses still work with accountants for strategic tax planning, year-end compliance, and advice on complex payroll situations.