The payroll landscape in Australia
When you buy a business with employees, you inherit their employment relationships, their accrued entitlements and their compliance history. The Fair Work Act, modern awards, the National Employment Standards (NES) and state-based payroll tax rules all apply from day one.
A seller who has been underpaying staff, skipping superannuation or misclassifying contractors will not just leave you with unhappy workers — they may leave you with back-pay bills, ATO penalties and Fair Work prosecutions.
PAYG withholding & BAS
As an employer, you must withhold income tax from employee wages and remit it to the ATO through the Business Activity Statement (BAS). Most small businesses lodge BAS monthly or quarterly. Before you buy, request the last 12 months of BAS summaries to verify that PAYG has been lodged on time.
Key checks
- BAS lodged on time for the last 4 quarters (check ATO portal access).
- PAYG withheld matches payroll reports — discrepancies mean trouble.
- GST collected matches sales invoices; GST paid matches supplier invoices.
- No outstanding ATO debts or payment plans in place.
Superannuation Guarantee
Employers must pay superannuation at the legislated rate (currently 11.5%, rising to 12% by 2025) into an employee's chosen fund at least quarterly. Missing a payment triggers the Superannuation Guarantee Charge (SGC), which includes the shortfall, interest at 10% and an administration fee — and SGC is not tax deductible.
Request the seller's superannuation payment history for the last 2 years. Cross-check against payroll records. If there are gaps, estimate the liability and negotiate it off the purchase price or hold it in escrow.
Superannuation red flags
- Payments made late or in lump sums at year-end.
- Salary-sacrifice arrangements not segregated from SG.
- Contractors treated as employees for tax but excluded from super.
Workers compensation insurance
Every Australian state and territory requires employers to hold workers compensation insurance for their employees. Premiums are based on wages, industry risk and claims history. A business with recent claims will face higher premiums for years.
What to verify
- Current policy and expiry date
- Premium rate and claims history
- Classification codes match actual work
- Cover extends to casuals and part-timers
State regulators
- NSW: icare / SIRA
- VIC: WorkSafe Victoria
- QLD: WorkCover Queensland
- WA: WorkCover WA
- SA: ReturnToWork SA
Payroll tax
Payroll tax is a state-based tax on wages once you exceed a threshold. Thresholds vary by state (e.g., NSW $1.2M, VIC $900k, QLD $1.3M as of recent years — check current rates). If the business is close to or above the threshold, payroll tax is a material cost that affects your cash flow.
Also watch for grouping provisions: if you own other businesses, their wages may be aggregated for threshold purposes. A seller who has not declared grouped wages could leave you with a surprise tax bill.
Leave entitlements & long-service leave
Annual leave, personal leave and long-service leave (LSL) are liabilities on the balance sheet — and they transfer to you. In most asset sales, you must recognise prior service, meaning you carry the LSL liability even though the seller enjoyed the employee's early years.
Entitlement checklist
- Annual leave balances and any negative balances (advance leave).
- Long-service leave provision — especially in states with 7-year triggers (e.g., VIC, QLD).
- Personal/carer's leave accruals and any unauthorised absences.
- Parental leave obligations for staff currently on or planning leave.
Fair Work & modern awards
Most Australian employees are covered by a modern award or an enterprise agreement. The award sets minimum pay rates, penalty rates, overtime and allowances. Paying below award rates — even accidentally — exposes you to back-pay claims and penalties.
Before settlement, confirm which award applies to each role, verify current base rates against the award rates (including any annual increases), and check that penalty rates and loadings have been applied correctly. The Fair Work Ombudsman can audit retrospectively for up to 6 years.
Calculate the true cost of the team
Use our wages and cash flow calculators to model payroll costs, super and tax under your ownership.