Online payroll made simple for small business

Published Friday 2 January 2026

Table of contents

• What is online payroll?
• Benefits of online payroll for small business
• Key features to look for in online payroll software
• How to choose payroll software
• Setting up your online payroll system
• Online payroll costs and pricing models
• Security and compliance in online payroll
• Managing payroll changes and different payment types
• Record keeping and archiving for online payroll
• Simplify your payroll with the right online solution
• FAQs on online payroll for small business

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 5 years as required by the ATO, including employee personal information, payment details, tax deposits, superannuation contributions, and all relevant tax forms and declarations.
• Utilise employee self-service portals to reduce administrative workload by allowing staff to access their own payslips, submit timesheets, request leave, and view payment summaries online.

What is online payroll?

Payroll refers to the process of paying employees and managing related tax obligations. For small businesses, payroll involves:

• Payment processing: Calculating wages, salaries, and deductions
• Tax compliance: Withholding and remitting employee taxes
• Record keeping: Maintaining accurate employee payment records

Why payroll matters for your business:

• Legal compliance: Incorrect payroll can result in penalties and fines
• Employee retention: Accurate, timely payments keep staff satisfied
• Business efficiency: Automated systems save time and reduce errors

If it's online, you can run your payroll from anywhere, at any time. It's designed to save you time, reduce errors, and make it easier to stay compliant, giving you more freedom to focus on running your business.

Benefits of online payroll for small business

Switching to an online payroll system helps you spend less time on pay runs and feel more confident in your numbers.

• Save time with automation: Online software automatically calculates pay, tax, and superannuation, reducing manual data entry and paperwork.
• Improve accuracy: Automation minimises the risk of human error, helping ensure your employees are paid correctly and on time.
• Stay compliant with ease: Good online payroll systems are updated automatically to reflect the latest tax rates and regulations, making it simpler to meet your obligations.
• Access payroll anywhere: Because it's in the cloud, you can manage payroll from your office, home, or on the go, using any device.
• Empower your team: Many systems include an employee self-service portal where staff can view payslips, submit timesheets, and request leave online.

Key features to look for in online payroll software

When comparing online payroll solutions, look for features that simplify your workload and support your business as it grows. Here are some essentials to consider:

• Single Touch Payroll (STP) compliance: This is a must-have for reporting to the ATO. The software should make STP reporting a simple, integrated step.
• Automated calculations: The system should handle all pay calculations, tax withholding (PAYG), and superannuation guarantee contributions automatically.
• Employee self-service: A portal for employees to access their payslips, payment summaries, and manage leave requests saves you administrative time.
• Integration with accounting software: Look for a solution that connects with your accounting software to avoid double entry. Major providers facilitate this through extensive app marketplaces; for example, Xero’s Australian marketplace contains about 700 apps for various industries.
• Timesheet management: Features that allow employees to submit timesheets online for approval can streamline the entire pay run process.

How to choose payroll software

Payroll software automates wage calculations, tax deductions, and compliance reporting. You can choose between integrated accounting software with payroll features or standalone payroll applications.

Key selection criteria:

• Integration capability: Choose software that connects with your existing accounting system
• User-friendly interface: Select 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 1 to 50+ 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
• Compliance features: Confirm the software handles STP reporting and tax obligations

You can also look for features such as automated tax calculations, direct deposit and timesheet handling. Choose software that meets your needs now and in the future, so you do not have to move to a new payroll system later.

Setting up your online payroll system

Proper payroll setup ensures accurate payments, tax compliance, and efficient processing from day one. Follow these essential steps:

1. Register your business

Include your Australian business number (ABN) on all payroll documents and on any forms you send to the Australian Taxation Office (ATO) or other bodies you must register with or report to.

2. Record your employees' data

When entering employee information like name, address, and Tax File Number (TFN), be aware of your legal obligations, as employers have responsibilities under the Privacy (Tax File Number) Rule for handling TFN information. Also include contact details, salary, days off, leave entitlements, overtime and any other compensation. Check local regulations to find out what data you must include.

3. Do the paperwork

Make sure your staff complete all necessary tax forms and return them. Do the same with your own forms.

4. Decide on payment periods

How often will you pay your employees? It might be weekly, monthly or fortnightly.

5. Keep up to date

Keep payroll information up to date. You can do this yourself or ask a bookkeeper or your accountant to manage it for you.

6. Set up an archive

For records you must keep for several years, decide how you will store and archive them. Payroll software can store many records for you, but you may still need paper copies of some documents such as tax forms. Check your local record-keeping requirements so you keep the right documents for the right period.

Online payroll costs and pricing models

Understanding how online payroll is priced helps you choose a plan that fits your budget. While costs vary between providers, most follow a few common models:

• Per-employee pricing: Many providers charge a small fee per employee, per month, while others offer a la carte pricing. For instance, some platforms allow you to pay a small monthly fee for a core module and then add invoices, payroll, and other features as needed.
• Tiered subscriptions: Some offer different subscription levels with varying features. A basic tier might cover simple pay runs, while higher tiers could include advanced reporting or HR features.

Look for straightforward pricing without hidden fees for setup or support. The right plan should provide the features you need now, with the flexibility to adapt as your business evolves.

Security and compliance in online payroll

Because you handle sensitive employee and financial data, security and compliance are critical. Reputable online payroll providers use strong controls to protect your information.

Modern cloud software uses multiple layers of security, including data encryption, to protect your information. This is often the same level of security that banks use. The software updates regularly when tax laws and superannuation rates change, so your payroll stays compliant. This helps you meet your obligations for Single Touch Payroll (STP) reporting and ensures your calculations are based on the latest rules.

Managing payroll changes and different payment types

Payroll changes occur when you hire new staff or modify existing employee payments. Each new employee requires completed tax file number declarations and superannuation choice forms, and according to the ATO, these super fund choice records must be kept for 5 years.

Common payment types include:

• Salaried worker: Someone who's paid a fixed salary for each pay period
• Regular hourly or casual employee: Paid an hourly rate for the hours worked each week
• Commission: Paid for services rendered, products or services sold, usually on a percentage basis
• Bonus: Paid for good performance over and above expected levels
• Supplemental wages: A catch-all term that includes commissions, overtime pay, terminations and back pay

Record keeping and archiving for online payroll

Record retention requires keeping payroll documents for a specific period. According to the ATO, you generally need to keep these records for 5 years from when they were prepared or obtained. Essential records for each employee include:

Personal information:

• Name, address, and tax file number (TFN)
• Employment start and end dates

Payment records:

• Wage and salary payment amounts and dates
• Tax deposits made and confirmation numbers
• Superannuation contributions and dates

Documentation:

• Copies of tax forms and employee declarations
• Sickness and injury payment details
• Fringe benefits and expense reimbursements

There may be other information that you are legally required to keep. Check with the Australian Taxation Office (ATO) to find out.

Simplify your payroll with the right online solution

Online payroll software simplifies employee payments, ensures tax compliance, and scales with your business growth. Whether you manage payroll in-house or outsource to professionals, you remain responsible for accuracy and compliance.

The right online solution saves time and reduces errors while providing real-time access to payroll data and automated tax calculations. Start with proper setup and professional guidance to avoid costly mistakes as your business expands.

Ready to streamline your payroll process? Try Xero for free and discover how automated payroll can transform your business operations.

FAQs on online payroll for small business

Here are answers to common questions you might have about moving to online payroll.

Is online payroll difficult to set up?

No, most modern payroll software is designed to be user-friendly. It will guide you through the setup process step-by-step, from adding your business details to entering employee information.

How does online payroll handle superannuation?

The software automatically calculates the superannuation guarantee contribution for each employee in every pay run. Many systems also help you streamline payments to super funds to ensure you meet your obligations.

Can my employees access their own payroll information?

Yes, a key benefit of online payroll is the employee self-service portal. It allows your staff to securely view and download their payslips, check leave balances, and submit timesheets online.

Is my business data secure with online payroll?

Absolutely. Reputable providers use multiple layers of security, including data encryption and secure cloud servers, to protect your sensitive business and employee information.