How to calculate payroll from timesheets
Calculating payroll accurately is essential for compliance, employee satisfaction, and avoiding costly errors. Whether you're processing payroll manually or using software, understanding the calculation process ensures you pay employees correctly every time.
Written by
Georgia Morgan
General information only – not tax or legal advice
This guide provides general information about calculating payroll from timesheets for Australian businesses. It does not constitute legal, HR, or professional advice and should not be relied on as a substitute for advice specific to your business, workforce, or circumstances.
What is payroll calculation?
Payroll calculation is the process of determining how much to pay each employee based on the hours they've worked, their pay rate, any applicable penalty rates or overtime, and deductions like tax and superannuation. The goal is to calculate accurate gross pay and net pay (take-home) for every employee each pay period.
In Australia, payroll calculation must comply with Fair Work regulations and the relevant Modern Award or enterprise agreement. You must also withhold tax according to ATO PAYG withholding tables.
Sample payroll calculation worksheet
Here's what a typical payroll calculation worksheet looks like with the key sections highlighted.
A typical payroll calculation includes:
- Hours — Regular, overtime, penalty hours
- Gross pay — Total before deductions
- Deductions — PAYG tax and other deductions
- Net pay — Final take-home amount
Payroll calculation formulas
Here are the essential formulas you need to calculate payroll from timesheets.
Hours calculation
Daily Hours
End Time - Start Time - Breaks
Convert Minutes
Minutes ÷ 60 = Decimal Hours
Example: 45 mins ÷ 60 = 0.75 hours
Gross pay
Regular Pay
Hours × Hourly Rate
With Overtime
Regular + (OT Hours × Rate × 1.5)
Net pay
Final Formula
Gross Pay - (Tax + Deductions)
This is the amount the employee takes home
Leave loading
Annual Leave Loading
Leave Pay × 17.5%
Applied when taking annual leave
Award rates vary by industry
Different industries have different penalty rates, overtime rates, and casual loadings. Always check your industry's Modern Award or enterprise agreement. Visit our award rates hub for industry-specific guidance.
Payroll calculation checklist
Complete these items for each pay run to ensure accurate payroll processing.
Timesheets collected
EssentialAll employee timesheets received for pay period
Hours verified
EssentialStart/end times and breaks confirmed
Employee records checked
EssentialPay rates and employment type verified
Overtime identified
EssentialHours beyond standard 38/40 hrs marked
Penalty rates applied
EssentialWeekend/public holiday rates calculated
Leave loading calculated
Annual leave loading (17.5%) if applicable
Pre-tax deductions subtracted
Salary sacrifice super, etc.
PAYG tax calculated
EssentialUsing current ATO withholding tables
Post-tax deductions subtracted
Garnishments, child support, etc.
Payslips generated
EssentialDetailed breakdown for each employee
Three ways to calculate payroll
Each method has trade-offs. Here's how they compare.
Manual calculation
Calculator and paper timesheets. Cheap but slow and error-prone.
Best for: Businesses with 1-2 employees
Spreadsheet templates
Excel or Google Sheets with formulas. Better structure, still manual input.
Best for: Small businesses (3-10 staff)
Automated timesheet integration, tax calculation, and compliance. Fast and accurate.
Best for: All businesses (5+ employees)
How to calculate payroll from timesheets
Follow these 5 steps to calculate accurate payroll from employee timesheets.
Gather timesheets
Collect all employee timesheets for the pay period, including daily start and end times, and all breaks (both paid and unpaid).
Key actions:
- Ensure all timesheets are submitted before the deadline
- Check that start times, end times, and breaks are clearly recorded
- Verify that the dates align with your pay period
- Identify any leave taken (annual, sick, public holidays)
Calculate total hours
Work out the total hours worked by subtracting start time from end time, then removing unpaid breaks.
Key actions:
- Calculate daily hours: End Time - Start Time - Breaks
- Convert minutes to decimals: Divide minutes by 60 (e.g., 45 mins = 0.75)
- Sum all daily hours for the pay period
- Example: 40 hours + 3.5 hours = 43.5 total hours
Determine gross pay
Calculate the total pay before deductions, including regular pay, overtime, penalty rates, and any leave loading.
Key actions:
- Regular Pay: Total Hours (up to 38/40 hrs) x Hourly Rate
- Overtime/Penalties: (Overtime Hours x Rate x 1.5) or (Penalty Rate - e.g., 2x, 2.5x)
- Leave Loading: Calculate 17.5% (usually) if taking leave during the period
- Gross Pay = Regular + Overtime/Penalties + Loadings
Calculate deductions and taxes
Subtract pre-tax deductions, calculate PAYG withholding, and subtract any post-tax deductions.
Key actions:
- Subtract pre-tax deductions (e.g., salary sacrifice super)
- Calculate PAYG tax withholding based on tax tables
- Subtract post-tax deductions (e.g., garnishments, child support)
- Keep records of all deduction calculations
Find net pay
Calculate the final take-home pay by subtracting all taxes and deductions from gross pay.
Key actions:
- Net Pay = Gross Pay - (Taxes + Deductions)
- Double-check all calculations before processing
- Generate payslips showing gross pay, deductions, and net pay
- Keep detailed records for compliance and verification
Payroll calculation examples
See how to calculate payroll for different scenarios using Australian award rates.
Full-time employee: standard week
Scenario:
- • Employee works 38 hours in a week
- • Hourly rate: $30/hr
- • No overtime or penalties
Calculation:
Gross Pay = 38 hours × $30/hr = $1,140
Then subtract PAYG tax and deductions to get net pay
Full-time employee: With overtime
Scenario:
- • Employee works 38 regular hours + 5 overtime hours
- • Base rate: $30/hr
- • Overtime rate: 1.5x ($45/hr)
Calculation:
Regular: 38 hrs × $30 = $1,140
Overtime: 5 hrs × $45 = $225
Gross Pay = $1,140 + $225 = $1,365
Part-time employee: sunday penalty rate
Scenario:
- • Employee works 6 hours on Sunday
- • Base rate: $30/hr
- • Sunday penalty: 2x ($60/hr)
Calculation:
Sunday pay: 6 hrs × $60 (2x) = $360
Penalty rates vary by Award - check your industry rates
Casual employee: With 25% loading
Scenario:
- • Casual works 20 hours
- • Base rate: $30/hr
- • Casual loading: 25%
Calculation:
Base: 20 hrs × $30 = $600
Loading: $600 × 25% = $150
Gross Pay = $600 + $150 = $750
Need help with your industry rates?
Different industries have different rates and loadings. Visit our award rates hub to find rates specific to your industry, or use payroll software with built-in award compliance.
Payroll calculation tips
Follow these principles for accurate, compliant payroll processing every time.
Double-check everything
Verify all calculations before processing. Payroll errors are costly and damage trust.
Use the right award
Ensure you're applying the correct Award rates and conditions for each employee's role.
Track time accurately
Use digital time tracking to eliminate manual errors and disputes about hours worked.
Stay updated
Tax tables and Award rates change regularly. Keep your references and software current.
Document processes
Write down your calculation methods so any team member can process payroll consistently.
Audit regularly
Conduct spot checks and quarterly audits to catch and correct errors early.
Key considerations for australian payroll
Awards & agreements
Check the relevant Award for specific penalty rates (Saturday, Sunday, public holidays)
Casuals
Usually get a loading (e.g., 25%) instead of penalty rates, but this varies by Award
Software
Use payroll software (like Xero, QuickBooks, or RosterElf) for accuracy and automation
Record keeping
Keep timesheets, payslips, and calculation records for at least 7 years
Automate payroll with RosterElf
What takes hours manually can be done in minutes with automated timesheet-to-payroll integration.
Track time automatically
Employees clock in/out digitally. Hours are tracked and calculated automatically with break deductions.
Apply award rates
Penalty rates, overtime, and casual loadings applied automatically based on your industry Award.
Export to payroll
One-click export to Xero, QuickBooks, or other payroll systems with all calculations done.
Support your compliance efforts
Award rates and tax tables update automatically. Full audit trail for compliance.
No credit card required
Feature comparison
See exactly how each payroll calculation method stacks up across key features.
Time to calculate
Error rate
Overtime tracking
Penalty rates
Tax calculation
Leave loading
Audit trail
Compliance
| Feature | Manual | Templates | Payroll software |
|---|---|---|---|
| Time to calculate | 30-60 mins per employee | 15-30 mins per employee | 5 mins for all |
| Error rate | High (manual) | Medium | Very low |
| Overtime tracking | Manual calculation | Spreadsheet formulas | Auto-calculated |
| Penalty rates | Manual lookup | Pre-programmed | Award-based auto |
| Tax calculation | Manual (tables) | Formula-based | Auto PAYG |
| Leave loading | Separate calculation | Manual entry | Auto-applied |
| Audit trail | Paper records | Spreadsheet history | Full digital record |
| Compliance | Relies on knowledge | Better | Built-in compliance |
Common payroll calculation mistakes
Learn from others' errors. These mistakes lead to underpayment, overpayment, and compliance issues.
Not converting minutes to decimals correctly
Consequence: Under or overpaying employees by miscalculating hours (e.g., treating 1:30 as 1.3 hours instead of 1.5)
Solution: Always divide minutes by 60 to convert to decimal hours, or use time tracking software for automatic conversion. Learn more about <a href="/blog/payroll-errors-bad-timesheets">why payroll errors usually start with bad timesheets</a>
Forgetting to apply penalty rates
Consequence: Underpaying employees for weekend, public holiday, or night shifts as required by awards
Solution: Check the relevant Award for your industry and use award rate calculators or payroll software
Calculating tax incorrectly
Consequence: Over or under-withholding PAYG, leading to employee tax bills or ATO penalties
Solution: Use the current ATO tax tables or payroll software that updates automatically
Missing leave loading calculations
Consequence: Underpaying employees on annual leave by failing to apply the 17.5% leave loading
Solution: Calculate leave loading whenever annual leave is paid, or automate with software leave entitlement calculations
Not keeping detailed records
Consequence: Difficulty resolving disputes, failing compliance audits, or being unable to verify calculations
Solution: Keep all timesheets, calculations, and payslips for at least 7 years using digital HR records
Frequently asked questions about calculating payroll from timesheets
- To convert minutes to decimal hours, divide the number of minutes by 60. For example: 15 minutes = 15/60 = 0.25 hours, 30 minutes = 30/60 = 0.5 hours, 45 minutes = 45/60 = 0.75 hours. So if someone works 8 hours and 45 minutes, that equals 8.75 hours.
- The formula for gross pay is: Gross Pay = (Regular Hours × Hourly Rate) + (Overtime Hours × Overtime Rate) + (Penalty Hours × Penalty Rate) + Any Loadings. For example: 38 hrs × $30 = $1,140 (regular) + 5 hrs × $45 = $225 (overtime at 1.5x) = $1,365 gross pay.
- Net pay is calculated by subtracting all deductions from gross pay: Net Pay = Gross Pay - (PAYG Tax + Pre-tax Deductions + Post-tax Deductions). For example: $1,500 gross - $300 tax - $50 deductions = $1,150 net pay. This is the amount the employee takes home.
- Common deductions include: PAYG tax withholding (calculated from ATO tax tables), superannuation (if deducted from wages), salary sacrifice arrangements, child support or garnishment orders, union fees, and health insurance premiums. Pre-tax deductions are subtracted before calculating PAYG tax.
- Payroll frequency depends on your business and Award requirements. Common frequencies include weekly, fortnightly, or monthly. Most Australian businesses pay employees fortnightly. Whatever frequency you choose, it must be clearly stated in employment contracts and consistently applied.
Regulatory sources
This guide is aligned with official Australian workplace and tax regulations on payroll.
Automate payroll processing
RosterElf converts approved timesheets directly into payroll data with automatic award interpretation. Built for Australian small businesses.
Automate award compliance
Join thousands of Australian businesses using RosterElf to calculate pay rates and support your compliance efforts. Built for Australian small businesses.