Online payroll for small business: software and setup

Published Tuesday 21 April 2026

Table of contents

• What is online payroll?
• Benefits of online payroll for small business
• How to run payroll online
• Online payroll costs and pricing models
• Key features to look for in online payroll software
• Security and compliance in online payroll
• Setting up your online payroll system
• Simplify your payroll with the right online solution
• Customer feedback
• FAQs on online payroll for small business

Key takeaways

• Prioritise online payroll software that includes Single Touch Payroll (STP) compliance and integrates with your accounting system, so you avoid double data entry and automatically report tax information to the ATO.
• Set up your payroll system correctly from the start by registering for PAYG withholding, entering all employee details, and collecting required forms such as TFN declarations and superannuation choice forms before your first pay run.
• Keep payroll records for at least five years as required by the ATO, including employee details, payment history, superannuation contributions, and signed tax forms.
• Use employee self-service portals to cut down on admin by letting staff view their own payslips, submit timesheets, and request leave without needing to contact you directly.

Key takeaways

• Prioritise online payroll software that includes Single Touch Payroll (STP) compliance and integrates seamlessly with your existing accounting system to avoid double data entry and ensure automatic tax reporting to the ATO.
• Implement proper setup procedures by registering your business with an ABN, collecting all required employee tax forms and TFN declarations, and establishing clear payment periods before processing your first pay run.
• Maintain comprehensive payroll records for at least five years as required by the ATO, including employee personal information, payment details, superannuation contributions, and all relevant tax forms and declarations.
• Use employee self-service portals to reduce admin by allowing staff to access their own payslips, submit timesheets, request leave, and view payroll information online.

What is online payroll?

Online payroll is cloud-based software that automates employee payments and tax compliance. Instead of manual calculations and paper records, you manage everything digitally from any device.

For small businesses, online payroll handles:

• Calculating payments: Works out wages, salaries, and deductions automatically
• Handling tax compliance: Withholds and remits employee taxes to the ATO
• Maintaining records: Stores accurate employee payment history securely

Online payroll matters because it protects your business and your team:

• Avoid penalties: Incorrect payroll can result in ATO fines and compliance issues
• Keep staff satisfied: Accurate, timely payments support employee retention
• Save time: Automated systems reduce manual work and minimise errors

Cloud-based payroll lets you run your payroll from anywhere, at any time. You save time, reduce errors, and stay compliant, so you can focus on running your business.

Benefits of online payroll for small business

Online payroll benefits include faster pay runs, fewer errors, and built-in compliance. The result is less time on admin and more confidence in your numbers.

• Save time with automation: Calculate pay, tax, and superannuation automatically, reducing manual data entry and paperwork
• Reduce errors: Minimise the risk of human mistakes, helping ensure employees are paid correctly and on time
• Stay compliant easily: Receive automatic updates when tax rates and regulations change, making it simpler to meet your obligations
• Access payroll anywhere: Manage pay runs from your office, home, or on the go using any device
• Empower your team: Give staff access to a self-service portal where they can view payslips, submit timesheets, and request leave online

How to run payroll online

Running online payroll typically takes just a few clicks once your system is set up. The software handles calculations automatically, so each pay run follows the same simple process.

Here's how a typical pay run works:

1. Enter or import hours: Add employee timesheets manually or sync them from a time-tracking app
2. Review calculations: Check that wages, tax withholding, and super contributions look correct
3. Approve the pay run: Confirm the details and authorise payments
4. Process payments: Send wages directly to employee bank accounts
5. Report to the ATO: Submit your Single Touch Payroll (STP) data automatically
6. Distribute payslips: Employees receive digital payslips through the system or self-service portal

Most small businesses complete a pay run in 10–15 minutes once they're familiar with the process.

Online payroll costs and pricing models

Online payroll costs typically range from $0–$10 per employee per month, depending on the provider and features included. Understanding how pricing works helps you choose a plan that fits your budget.

Most providers follow one of these pricing models:

• Per-employee pricing: Pay a small monthly fee for each employee on your payroll. Some platforms also let you add features like invoicing or reporting separately on an a la carte basis after paying for a core module.
• Tiered subscriptions: Choose from different subscription levels based on your needs. Basic tiers cover simple pay runs, while higher tiers include advanced reporting or HR features.

When comparing costs, look for:

• straightforward pricing without hidden setup or support fees
• features that match your current needs
• flexibility to scale as your business grows

Key features to look for in online payroll software

Key online payroll features include STP compliance, automated calculations, and employee self-service. When comparing solutions, prioritise features that simplify your workload and support your business as it grows.

Here are the essentials to look for:

• Ensure STP compliance: Choose software that makes Single Touch Payroll reporting a simple, integrated step for ATO submissions
• Automate calculations: Select a system that handles pay, PAYG tax withholding, and superannuation contributions automatically
• Enable employee self-service: Provide a portal where staff can access payslips, view payment summaries, and manage leave requests
• Connect with accounting software: Pick a solution that integrates with your existing system to avoid double entry. Xero's Australian marketplace contains about 700 apps for various industries
• Streamline timesheet management: Use features that let employees submit timesheets online for your approval

Beyond features, consider these selection criteria:

• user-friendly interface: choose platforms that both you and your accountant can navigate easily
• cloud-based access: ensure remote access and automatic backups for flexibility
• scalability: pick solutions that grow from one to 50 plus employees without switching systems
• real-time reporting: verify the software provides instant payroll and compliance reports
• professional recommendations: consult your accountant or bookkeeper for industry-specific advice

Security and compliance in online payroll

Online payroll security means protecting sensitive employee data through encryption, secure servers, and access controls. Payroll compliance means meeting your legal obligations for tax reporting and superannuation.

Both are critical because you handle personal and financial information that must stay protected and accurate.

Reputable providers protect your data and keep you compliant through:

• bank-level encryption: multiple security layers protect your information, matching the standards used by financial institutions
• automatic tax updates: software updates when tax laws and super rates change, so your calculations stay current
• built-in STP reporting: submit payroll data to the ATO automatically as part of each pay run
• secure record storage: keep payroll records for the five years required by the ATO without managing paper files

Setting up your online payroll system

Setting up online payroll takes most small businesses a few hours to complete. Proper setup ensures accurate payments, tax compliance, and efficient processing from your first pay run.

Follow these steps to get started:

1. Register your business

Include your Australian Business Number (ABN) on all payroll documents and ATO forms. If you haven't already, register for PAYG withholding through the ATO, which you can do even if you don't have an ABN by phoning their business line or speaking to your tax agent.

2. Record your employees' data

Enter each employee's details into your payroll system. Be aware of your legal obligations under the Privacy (Tax File Number) Rule when handling Tax File Number (TFN) information.

Include the following for each employee:

• name, address, and Tax File Number (TFN)
• contact details and start date
• salary or hourly rate
• leave entitlements
• overtime rates and any other compensation

3. Collect required forms

Gather completed forms from each employee before their first pay run:

• tax file number declaration
• superannuation choice form
• Fair Work Information Statement acknowledgement

Keep copies of all forms in your records, as documents like super fund choice records must be kept for five years.

4. Decide on payment periods

Choose how often you'll pay employees: weekly, fortnightly, or monthly, keeping in mind that from 1 July 2026, employers must pay the super guarantee for each payday. Most Australian small businesses use fortnightly pay runs. Consider your cash flow and what works best for your team.

5. Keep information current

Update your payroll system whenever employee details change, such as new addresses, pay rates, or super fund choices. You can manage this yourself or ask your bookkeeper or accountant to handle it.

6. Set up an archive

Your payroll software stores most records automatically. For any paper documents like signed tax forms, create a secure filing system. The ATO requires you to keep payroll records for five years.

Simplify your payroll with the right online solution

Online payroll simplifies employee payments, ensures tax compliance, and scales with your business. Whether you manage it in-house or work with an accountant, the right software saves time and reduces errors.

Start with proper setup and professional guidance to avoid costly mistakes. Ready to streamline your payroll? Get one month free and see how automated payroll can work for your business.

Customer feedback

96% of customers say they run payroll faster using Xero.

*Source: survey of 894 small businesses in Australia using Xero payroll, May 2024

FAQs on online payroll for small business

Here are answers to common questions about online payroll.

Is online payroll difficult to set up?

No. Most modern payroll software guides you through setup step-by-step, from adding business details to entering employee information.

How does online payroll handle superannuation?

The software calculates super guarantee contributions automatically for each pay run, ensuring you meet minimum requirements like the jump to 12% of ordinary time earnings from 1 July 2025. Many systems also streamline payments to super funds so you meet your obligations on time.

Can my employees access their own payroll information?

Yes. Most online payroll systems include an employee self-service portal where staff can view payslips, check leave balances, and submit timesheets securely.

Is my business data secure with online payroll?

Yes. Reputable providers use bank-level encryption, secure cloud servers, and access controls to protect your business and employee information.

How long does a pay run take with online payroll?

Most small businesses complete a pay run in 10–15 minutes once the system is set up. The software handles calculations automatically, so you're mainly reviewing and approving.