Setting up wages and salaries in Australia

You're past the business-plan stage and about to hire your first employee, or you're restructuring payroll after a growth phase. This process walks you through the legal steps to pay staff correctly from day one — and the steps are imposed by Australian employment law and your applicable award, not by your payroll preference.

When you finish this process, you'll have a documented payroll system, clear employment contracts, and a payroll setup that meets the National Employment Standards and any relevant award. You won't have a "done" state — wages and salaries law requires ongoing review — but you will have the legal foundation to avoid common underpayment traps.

Prerequisites

Before you begin, gather and decide on the following:

• List of roles and duties. Each role will map to an award classification and a pay rate. Write down the core duties — award classification is based on duties, not job title.
• Award identification. Use the Fair Work Pay and Conditions Tool to find which award (if any) applies to each role. Legal consequence: if you guess wrong, you're underpaying.
• Employment type decision. Decide whether each role is full-time, part-time, or casual. This affects entitlements, award coverage, and statutory obligations.
• Super fund nomination. Confirm which superannuation fund you'll contribute to, or let eligible employees nominate (they have a right to do so).
• Payroll system access. Set up a payroll software (MYOB, Xero, Guidepoint, or equivalent) or manual tracking system with capacity to generate compliant payslips.
• Records preparation. Prepare to keep records of hours, rates, leave accruals, deductions, and superannuation contributions — required by law.

Step 1: Map each role to an award classification and rate

Open the Fair Work Pay and Conditions Tool and search by industry or job category. Select the relevant award (e.g., Retail Award, Professional Employees Award, or "no award"). If no award applies, your employee is covered by the National Employment Standards, which set the absolute minimum.

For each role:

• Write the award name and classification level (e.g., "Retail Award, Sales Assistant Level 2").
• Note the base hourly or weekly minimum rate from the award.
• Check for applicable casual loading (typically 25%), penalty rates (weekends, public holidays, late nights), and allowances (leading hand, uniform, etc.).

What you'll produce: A simple internal document — one row per role — with award name, classification, base rate, and key loadings.

Where people get stuck:

• Assuming job title equals classification. A "Senior Administrator" might fall under Level 1, Level 2, or no award at all depending on actual duties. Read the award classification rules and match duties, not title.
• Forgetting that salaried roles can still be award-covered. If your salaried employee's salary doesn't exceed the award entitlements (including penalties and overtime), the award still applies, and you must pay the difference.

Step 2: Decide on wage vs. salary and payment structure

For each role, choose a payment model:

• Hourly wage. Pay per hour worked (or per shift). Used for casuals and part-time roles with variable hours. Penalty rates and overtime are paid separately as they accrue.
• Fixed salary. A set annual amount divided by the pay cycle (weekly, fortnightly, monthly). Used for full-time roles where hours are stable.
• Annualised salary (for eligible roles only). A single annual figure that covers ordinary hours plus expected penalties, overtime, and loadings. Requires strict award rules: a written agreement, quarterly/annual reconciliation against the award, and a top-up if the annualised amount falls short.

Also decide on your pay cycle: weekly, fortnightly, or monthly. Most small businesses use fortnightly.

Where people get stuck:

• Using an "all-in" salary without checking the award. If your total annual salary doesn't leave the employee better off overall than the award entitlements, it's not compliant. See Step 4 for the verification.
• Switching between wage and salary mid-year without updating the contract. Any change in employment type (full-time to part-time, casual to part-time) requires a new written agreement and a recalculation of entitlements.

Step 3: Draft and issue an employment contract

Create a written employment contract for each role. Must include:

• Employment type and classification. Full-time, part-time, or casual; award name and classification level (if applicable).
• Pay structure. Wage (per hour or shift) or salary (per annum, payable [weekly/fortnightly/monthly]); whether the figure is "plus super" or "inclusive of super."
• Hours and rostering. Ordinary hours per week, rosters, how additional hours are approved (email, timesheet, manager sign-off), and whether extra hours are paid as overtime or traded as TOIL (time-off-in-lieu).
• Superannuation. Super fund name, account details, and the fact that super is paid on Ordinary Time Earnings at the statutory rate (currently 12%, increasing to 12.75% on 1 July 2026).
• Award entitlements. If covered by an award: reference to the award, classification level, applicable penalty rates, annual leave entitlement (usually 4 weeks), personal/carer's leave (10 days), and public holidays.
• Deductions. Only lawful deductions — income tax withholding, superannuation, and any deductions the employee has agreed to in writing and which are principally for their benefit (e.g., membership fees, health insurance). No deductions for breakage, uniforms, or cash shortages unless strictly authorised by law or the award.
• Policies. Reference relevant policies: staff handbook, leave request process, WHS policy, confidentiality, disciplinary process.

Provide a copy to the employee before or on the first day of work, and keep a signed copy on file.

Where people get stuck:

• Ambiguity about "plus super" vs. "inclusive of super." If you offer "$50,000 plus super," the employee gets $50,000 plus 12% ($6,000) superannuation. If you say "inclusive," the employee gets $50,000 total (bad deal for them, and risky for you). Be explicit in writing.
• Missing or vague hours clauses. If the contract says "as required" with no ordinary hours stated, disputes about overtime and penalty rates multiply. Pin down ordinary hours and the approval process.

Step 4: Verify the salary against the award ("better off overall" test)

If the role is award-covered, check that your proposed salary is compliant. Compare:

• Award entitlements: Base rate + penalties (weekends, nights) + overtime + allowances + leave loadings, calculated for the employee's actual or reasonably expected pattern.
• Your salary offer: Is it more than the award would pay?

If your salary is "fixed" (no separate penalties or overtime), annualise the award entitlements and compare. For example:

• Retail Award, Level 2: base $25/hr, casual loading 25% ($31.25/hr), works Saturdays 6 hrs/week @ 150% = $281.25/week penalty premium. Over 52 weeks: $14,625 + base ($52,000) = $66,625 minimum.
• Your offer: $70,000 (salary, all-in). Compliant.

If your offer is below the calculated award entitlements, you must either raise the salary or pay the shortfall separately (e.g., penalty rates each pay run).

Where people get stuck:

• Assuming all-in salaries work across the board. They work for stable, predictable roles (e.g., 9–5 office worker with no weekends). They break down for casual or shift work with variable rostering — the award variation week-to-week exceeds the annual budget.
• Forgetting to reconcile annualised salaries annually. If you annualise, the law requires you to reconcile actual hours and penalties at least annually and top up if the annualised figure falls short.

Step 5: Configure payroll for correct deductions and super

Set up your payroll system to:

• Deduct PAYG income tax. Use the ATO tax tables (updated each financial year) to calculate withholding. Provide the employee with a payslip that shows gross, tax withheld, and net.
• Deduct super contributions. Pay 12% of Ordinary Time Earnings (base rate + regular allowances, excluding penalties and overtime unless the award includes them in OTE). From 1 July 2026, super must be paid on the same day as wages, not quarterly.
• Apply penalty rates and overtime. If the award or contract requires it, set up calculations for weekend/public holiday penalties (commonly 150%, 200%, or 250% depending on the award) and overtime (commonly time-and-a-half after 38 hours/week).
• Manage leave accruals. Annual leave, personal/carer's leave, and long service leave accrue each pay run. Payroll systems auto-calculate if configured correctly; confirm your settings match the role's employment type.
• Generate payslips. Each payslip must show gross pay, tax withheld, super contribution, any deductions, net pay, and leave balances (best practice). Provide payslips within 1 working day of pay day.

Where people get stuck:

• OTE confusion. Super is calculated on OTE, not total pay. If an employee earns $1,000 base + $200 penalty + $100 overtime, OTE might be $1,100 (base + regular allowance), so super is 12% of $1,100 = $132, not 12% of $1,300.
• Not updating tax witholding tables annually. The ATO updates tax tables each financial year. Failure to update means incorrect withholding and reconciliation headaches.
• Forgetting casual super. Casuals are entitled to super on hours they actually work. If you pay casual penalty loading (e.g., 25%), the base rate + loading = OTE for super calculation.

Step 6: Train managers on rostering and approvals

If your team includes part-time or casual staff, or if overtime is common, brief managers on:

• Ordinary hours and rosters. State the ordinary weekly hours in the contract and roster employees to that level. Any hours beyond ordinary hours are overtime/penalties.
• Approval process for extra hours. Require a manager's sign-off (email, approval form, timesheet sign-off) before extra hours are worked. Document it so you can later prove the hours were approved and weren't forced on the employee.
• Time tracking. Use timesheets, clock-in systems, or payroll software logs. Accuracy matters: if a timesheet is wrong, the payslip is wrong, and you've created an underpayment or a dispute.
• Award penalties. If the award includes Saturday/Sunday or night penalties, make sure the roster setup flags these. Don't rely on the employee to claim — the law requires you to pay them.

Where people get stuck:

• Verbal approval of overtime. If overtime is contested, you need a written record. "She said yes" won't suffice in a dispute.
• Rosters that systematically exceed ordinary hours without explicit approval. If your ordinary hours are 38/week but your roster consistently puts people at 42 hours, and those extra 4 hours aren't pre-approved or recorded as overtime, you're creating underpayment risk.

Step 7: Review wages and salaries quarterly and annually

Build a review cycle into your operations:

• Quarterly: Pull a payroll report. Spot-check a few pay runs for accuracy — hours match timesheets, rates match the contract, super and tax are correct, leave accruals are credible.
• Annually: Before 1 July, check the Fair Work Pay and Conditions Tool for any annual wage review changes (the Fair Work Commission usually adjusts minimum wage rates and award rates each year). Confirm your pay rates are compliant. If you use annualised salaries, reconcile actual hours and penalties against the annualised figure and top up if needed.

Also watch for role changes — if an employee moves from part-time to full-time, or is reclassified under the award, update the contract, recalculate entitlements, and issue a variation letter.

Where people get stuck:

• Skipping the annual review. Small business owners often set up payroll once and don't touch it for years. Award rates change every July; super rates increase; and the law changes. Missing these updates means systematic underpayment.
• Not reconciling annualised salaries. If you've told an employee their salary "covers penalties and overtime," but the actual roster has changed or the award was updated, the salary may no longer be sufficient. Without annual reconciliation, you discover the shortfall when the employee files a claim.

Getting help from Artificer Legal

Setting up wages and salaries correctly is a compliance routine, not a one-off. If you're hiring your first employee or restructuring existing payroll, Artificer Legal can help you:

• Map your roles to award classifications. We'll review your job descriptions against the relevant award and confirm the correct classification and minimum rates.
• Draft compliant employment contracts. We'll create a tailored contract that captures employment type, award coverage, pay structure, super basis, hours, penalties, overtime/TOIL terms, and deductions — and ensure it complies with the award.
• Verify salary compliance. If you're using an annualised or "all-in" salary, we'll calculate the award entitlements for the actual roster pattern and confirm the salary is sufficient.
• Set up payroll processes. We'll review your payroll system configuration, help you set up penalty and overtime calculations, and create a quarterly/annual review schedule.
• Audit existing payroll. If you've been paying staff for a while, we can conduct a compliance review to identify and remedy any underpayments.

Review pay against the award each year

Annual review against the award is the difference between sustainable compliance and a mounting liability. Small businesses that set payroll once and don't revisit it until an employee complaint arrives are almost always exposed to underpayment claims — sometimes across years and multiple staff. Award rates change, super rates change, roster patterns change, roles are reclassified. A 20-minute annual check against the current award minimums catches and fixes issues before they compound.

The secondary lifeguard is contractual clarity. "Plus super," not "inclusive." "Ordinary hours of 38 per week," not "as required." "Penalty rates per the award," not "time off in lieu at my discretion." A clear contract means disputes are rarer and easier to resolve.

Set up the system once with care, then maintain it quarterly and review it annually against the current law. That rhythm keeps you compliant, fair, and protected.