Which Payroll Service Is Right for Your Small Business in Australia?

 My name is Zoe Hadley, and I’ve been working as an accountant in Australia for more than 35 years. Over those decades, I’ve worked with hundreds of business owners – from small cafés and tradies to growing e-commerce stores. If there’s one topic that almost every small business owner has struggled with at some point, it’s payroll.

Payroll isn’t just about handing over wages. It’s about:

• Making sure your employees are paid correctly and on time.
• Managing superannuation, PAYG withholding, and leave entitlements.
• Staying compliant with Fair Work rules and ATO (Australian Taxation Office) reporting.

The truth is, payroll can quickly become overwhelming. I’ve seen many small business owners spend their weekends trying to sort it out, only to discover mistakes later that cost them time, money, and peace of mind.

So the big question is: which payroll service is right for your small business? Let’s explore the options, along with the lessons I’ve learned from real experiences.

Why Payroll Is So Important

Before we look at the services, let’s talk about why payroll matters.

When I started out in the 1980s, payroll was often done manually – paper timesheets, cheques, and handwritten records. Mistakes were common, but things were simpler back then. Today, the rules are stricter, and the penalties for mistakes are harsher.

For example:

• If you don’t pay superannuation correctly, you face the Superannuation Guarantee Charge (SGC).
• If you misclassify a contractor as an employee (or vice versa), the ATO can make you pay back wages, tax, and super.
• If you underpay staff by not following the right Modern Award, Fair Work can step in – and it often gets messy.

In my 35 years, I’ve seen all of these situations happen, and they’re stressful for business owners who just wanted to do the right thing. That’s why choosing the right payroll service is so important.

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Payroll Services Available for Small Businesses in Australia

Here’s a breakdown of the main payroll services you can choose from – along with my insights from working with different clients.

1. DIY Payroll Using Software

Software like Xero, QuickBooks, and MYOB has transformed how small businesses handle payroll. These tools can:

• Automate payslips.
• Calculate PAYG tax and superannuation.
• Submit Single Touch Payroll (STP) reports directly to the ATO.
• Track leave and entitlements.

I’ve helped many of my clients set up payroll in Xero and QuickBooks. Once the setup is right, the process becomes much smoother.

But here’s the catch: if the setup is wrong, the mistakes repeat every pay cycle. For example, I once worked with a hair salon that mis-entered super rules in Xero. Staff were underpaid super for six months before anyone noticed. We fixed it, but it was a costly lesson.

Best for: Very small businesses (1–5 staff) with simple payroll needs.

2. Outsourced Payroll Services

Some businesses simply don’t want the stress of managing payroll themselves. That’s when outsourcing comes in.

An outsourced payroll provider will:

• Process your payroll on schedule.
• Ensure compliance with tax, super, and Fair Work.
• Keep records accurate and audit-ready.
• Handle STP reporting directly with the ATO.

I had a client running an e-commerce store with staff in three different states. Between different awards and super obligations, payroll became a nightmare. Once they outsourced, they saved hours each week and finally stopped worrying about mistakes.

Best for: Small businesses with growing teams (5–20 staff) or complex payroll rules.

3. Bookkeepers Offering Payroll

Some small businesses already have a bookkeeper managing invoices and BAS. Adding payroll to their responsibilities can be cost-effective.

This works well when the bookkeeper is experienced with payroll rules. But I’ve also seen issues where bookkeepers didn’t fully understand awards or misclassified employees.

For example, a café owner I worked with relied on a bookkeeper to handle payroll. Unfortunately, casual staff were paid below the award rate. When Fair Work investigated, the café had to pay thousands in back wages.

Best for: Small teams with straightforward pay structures, as long as the bookkeeper is payroll-savvy.

4. Accountants Who Manage Payroll

Some accountants, myself included, offer payroll as part of our broader services. The advantage is that payroll ties directly into BAS, GST, and tax returns.

When I manage payroll for clients, I make sure:

• PAYG withholding matches their tax obligations.
• Super payments are included in financial planning.
• Staff entitlements are tracked properly.

It’s a more holistic approach. Business owners often feel reassured knowing one professional is looking after the entire financial side.

Best for: Business owners who want payroll and tax services integrated.

5. Specialised HR & Payroll Providers

For small businesses that are growing fast, sometimes a specialised provider is best. These services don’t just process payroll – they help with:

• Interpreting modern awards.
• Managing leave and rosters.
• Handling HR compliance and employee disputes.

I once worked with a logistics company that grew from 10 staff to 50 within two years. They needed more than just payroll—they needed HR support too. A specialised provider was the right choice for them.

Best for: Larger small businesses (20+ staff) or those scaling quickly.

The Payroll Challenges I’ve Seen Over the Years

Payroll problems are more common than many business owners realise. Let me share some real-life examples from my career.

 Mistake 1: Forgetting Superannuation

I once worked with a landscaper who didn’t realise his casual workers qualified for super. After an audit, he had to pay back two years of super plus penalties.

 Mistake 2: Misclassifying Contractors

An e-commerce client thought their packers were contractors, not employees. The ATO disagreed, and the business had to backpay wages, PAYG tax, and super.

 Mistake 3: Underpaying Staff

A tradesman client didn’t understand the award system. Apprentices were underpaid. Fair Work got involved, and the client had to make large back payments.

Each of these could have been avoided with the right payroll service.

Key Payroll Features Small Businesses Should Look For

When choosing a payroll service, here are the non-negotiables:

• Payslip generation (legally required).
• STP compliance (ATO reporting every pay cycle).
• Superannuation payments tracked and lodged on time.
• Tax withholding (PAYG) calculated correctly.
• Award interpretation to avoid underpaying staff.
• Leave tracking for annual, sick, and long-service leave.
• Year-end reporting to finalise ATO records and employee income statements.

My Advice After 35 Years

So, which payroll service is right for your small business? Here’s my honest advice:

• If you have 1–5 staff → Use payroll software like Xero or QuickBooks. Simple, affordable, and effective.
• If you have 5–20 staff → Consider outsourcing payroll. It saves stress and ensures compliance.
• If you already use a bookkeeper → Add payroll, but only if they understand awards and super.
• If you want integration → Let your accountant handle payroll alongside your tax and BAS.
• If you’re scaling quickly → Invest in a specialised HR & payroll provider.

The right choice depends on your size, complexity, and how much time you want to spend on admin.

Final Thoughts From Zoe

Payroll might not be the most exciting part of running a business, but it’s one of the most important. It affects your staff’s trust, your compliance with the law, and your peace of mind.

Over my 35 years as an accountant, I’ve seen the stress that payroll mistakes cause – but I’ve also seen the relief when business owners find the right service for them.

Whether you choose software, outsourcing, or a professional to manage it, the key is this: don’t try to do it all alone. With the right payroll service, you can focus on what you love about your business, while knowing your staff and the ATO are taken care of.