How to pay employees: salary, wages, and payroll in Australia

Published Monday 26 January 2026

Table of contents

• Understanding legal requirements for paying employees
• Types of employee compensation structures
• Deciding on pay is a balancing act
• Work out what to pay your employees in five steps
• Setting up your payroll system
• Put your best foot forward
• FAQs on paying employees

Key takeaways

• Research market salary data using online platforms like PayScale and speak with local business owners, recruitment firms, and industry contacts to understand current pay rates for similar roles in your location.
• Calculate what you can realistically afford by considering how much revenue the new employee will generate, the time they'll save you, and the impact on other employees' salary expectations.
• Comply with legal requirements by checking the Fair Work Ombudsman website for minimum wage rates, relevant awards, and National Employment Standards that apply to your industry and role.
• Create competitive offers that include non-financial benefits like flexible working arrangements or extra leave, as up to a third of employees value certain perks over pay rises.

Understanding legal requirements for paying employees

Before you decide on a number, you need to know your legal obligations. In Australia, employee pay is regulated to ensure everyone is treated fairly. Getting this right from the start protects your business and builds trust with your team.

Key things to be aware of include:

• National Employment Standards (NES): These are the 11 minimum entitlements that have to be provided to all employees.
• Minimum wage: You must pay your employees at least the national minimum wage. This is reviewed each year.
• Awards and agreements: Many jobs are covered by an award or registered agreement, which sets out minimum pay rates and conditions for a specific industry or occupation.

You can find up-to-date information on pay rates and legal requirements on the Fair Work Ombudsman website. Check this regularly so you stay compliant.

Types of employee compensation structures

Compensation is more than just a number. It's the total package you offer an employee. Understanding the different types helps you create an attractive and competitive offer.

Common compensation structures include:

• Salary: A fixed amount paid to an employee over a year, usually distributed in regular instalments like fortnightly or monthly. This is common for full-time and part-time roles.
• Wages: An hourly rate paid for the time an employee works. This is typical for casual staff or roles with variable hours.
• Bonuses and commissions: These are extra payments often tied to performance, either for the individual or the business. They can be a great way to motivate your team.

You can also offer non-financial benefits, like flexible working hours or extra leave, which can be just as valuable to employees.

Deciding on pay is a balancing act

Employee pay balancing is the process of finding the right salary that attracts talent without overspending. A good salary attracts and keeps good talent while showing you value your employees.

At the same time, you need to keep pay at a level your business can sustain. You have to weigh up:

• what a prospective employee wants
• what they're worth on the market
• what they're worth to your business
• what you can afford to pay

During this exercise, consider these alternatives:

• Part-time roles: Less commitment for your business with candidates seeking flexibility
• Contract support: Reduced long-term obligations while meeting immediate needs

Work out what to pay your employees in five steps

If you decide you need a full-time employee, here are some pointers on figuring out how much to pay them.

1. Write an accurate job description

Job descriptions help you set accurate salaries by defining role requirements clearly, which is increasingly important as 9 out of 10 new jobs are projected to require post-secondary qualifications. Start with the title.

Make sure it accurately reflects the job duties you want your employee to perform. Keep it generic enough so it can be compared to similar roles in your industry.

Include these key elements in your job description:

• Duties and responsibilities: List what you want your employee to fulfil
• Time allocation: Show what percentage of time they'll spend on each task
• Required skills: Sum up the skills and work relationships relevant to the role

You can get started with this free job description template.

2. Get up-to-date salary data

Market salary research involves finding what other businesses pay for similar roles. Data on employee pay changes constantly as demand for certain skills grows quickly; for instance, projections show that digital and technology jobs will grow by 21 per cent by 2033.

There are several good places to go looking.

Start online

Search websites like PayScale to find out the market rates for different jobs in your location. It'll give you a good snapshot for free, or you can pay for a detailed report.

Talk to local contacts

The web provides general data, but talking to people gives you specific insights. Contact these sources:

• Business owners: Those who've faced similar hiring decisions
• Recruitment firms: Experts in current market rates
• Suppliers and customers: Industry contacts with hiring experience
• Other employers: Anyone who's asked "how much should I pay my employees"

It also helps to speak with people whose job description matches the vacancy you have. If you're hiring a senior designer, for example, chat with senior designers in your network.

Comply with the law

Legal compliance ensures you meet all employment law requirements when paying employees. Check the law if you plan to employ someone on minimum wage or offer overtime.

Talk to your adviser and check the Fair Work Commission for guidance on other legal issues.

Use this checklist to guide you:

• Minimum wage obligations: Ensure you meet legal pay requirements
• Payment requirements: Day, frequency, and method of payment rules
• Payment changes: What you must do to change payment schedules
• Holiday leave: When to pay annual holiday leave entitlements
• Record keeping: Your legal documentation obligations, which include the requirement to finalise each income statement for employees by 14 July each year.

3. Find out a candidate's pay expectations

Candidate pay expectations are the salary and benefits your prospective employees want for the role. Don't forget that candidates have opinions about fair compensation.

Use the interview process to understand their expectations and decide early if you can afford them.

Ask about:

• Current pay: Are they paid a fixed salary, commission or wages?
• Additional benefits: What's their current situation? For example, do they receive additional leave, the opportunity to work from home or the flexibility to leave early to meet childcare commitments?
• Reasons for applying: What are they looking for? Is it to find a more senior role and increase their salary? Are they looking for a partnership opportunity? Was it your company's brand or values that attracted them?

Answers to these questions will give you valuable insight into your candidate's pay expectations and help you make a realistic offer.

4. Calculate what you can afford

Analyse what your business can realistically pay employees based on your financial capacity. You've gathered market data, checked legal requirements, and understood candidate expectations.

Now look inside your business and ask "what can I afford?" Run through these questions:

Consider these financial factors:

• Revenue generation: How much revenue will your new employee help generate annually?
• Time savings: Calculate the value of time they'll save you for business growth
• Organisational impact: How could your offer affect other employees' expectations?
• Future raises: Will you be prepared for salary increases in one to two years?
• Business reinvestment: Ensure salary costs don't reduce money for business growth

Talk to your lawyer to ensure your offer meets legal requirements and doesn't break any laws.

Be prepared to negotiate when the time comes, particularly with senior employees.

5. Make an offer

Once you've decided how much to pay your employee, you need to ask what else will go into the offer, if anything. Here are some options.

Offer a straight salary

A straight salary is the simplest and easiest offer to make, but candidates are used to getting a whole package so this could limit your appeal.

Put forward a mix of shares, salary and bonuses

Offering a mix of shares, salary and bonuses (tied to specific performance targets) is another option for the right candidate. A package featuring shares and performance bonuses can be more affordable. And it can make a big difference to people who are motivated by goal-setting and rewards.

Provide flexibility in the workplace

Up to a third of employees say they’d choose certain perks over a pay rise, so money’s not everything. Some people place a big value on working part-time, having an extra week's holiday or getting time off to study or look after family.

Be competitive

Whatever you offer, make sure it's competitive. It'll show you're serious about making the new hire a part of your team.

Staff turnover can grow when employees think they’re underpaid. You're better off spending a little more and keeping your staff than constantly hiring and training new people.

Failing to meet entitlements can have severe consequences; in cases of company liquidation, employees may have to rely on the government's Fair Entitlements Guarantee as a scheme of last resort. Word gets out, and you’ll have trouble attracting new people if you have a reputation for low pay.

Setting up your payroll system

Once you've hired your employee, you need a reliable way to pay them correctly and on time. This is where a payroll system comes in. A good system helps you manage all the moving parts of paying staff, saving you time and reducing the chance of errors.

Your payroll process will involve:

• Collecting employee details: This includes their Tax File Number (TFN) and superannuation fund information.
• Calculating pay and deductions: You’ll need to work out how much tax to withhold (pay as you go (PAYG) withholding) and calculate superannuation contributions.
• Reporting to the Australian Taxation Office (ATO): With Single Touch Payroll (STP), you report your employees’ pay, tax and super information to the ATO each time you run payroll. This includes specific updates, such as reporting details from a new TFN declaration form within 14 days of receiving it.

Using payroll software automates these tasks, from calculating pay runs to sending reports to the ATO. It simplifies compliance and gives you peace of mind that your employees are being paid accurately.

Put your best foot forward

"How much should I pay my employees?" isn't an easy question to answer. Take the time to do your research, however, and the rewards can be great. You'll get the right person at the right price.

Be ready to make a clear, competitive offer when you approach the candidate. It'll go a long way toward attracting and retaining the right talent. You can learn more in the Xero hiring guide.

After they come on board, deliver on your side of the deal. Start thinking now about how you'll manage cash flow so that there's always money for wages, and check that your payroll system will comply with the ATO's Single Touch Payroll requirements.

FAQs on paying employees

Here are answers to some common questions about paying employees.

What is the best way to pay employees?

Direct deposit is the most common and convenient method for paying employees. It electronically transfers funds from your business bank account to your employee's account. This saves you the time and effort of handling physical cheques and ensures payments are secure and on time.

What is the difference between gross pay and net pay?

Gross pay is the total amount of money an employee earns before any deductions are taken out. Net pay, or take-home pay, is the amount an employee receives after taxes, superannuation, and other deductions have been subtracted from their gross pay.

How often should you pay employees?

In Australia, employees are typically paid weekly, fortnightly, or monthly. The frequency of pay is usually determined by the relevant award or enterprise agreement, or what is agreed upon in the employment contract. Consistency is key, so choose a schedule and stick to it.