Payroll Taxes 101: A Beginner’s Guide for Employers

For employers new to payroll management, understanding payroll taxes is crucial — but it can feel overwhelming. In Australia, payroll obligations span state and federal requirements and can affect your business’s costs and compliance. From state payroll tax to federal Pay As You Go (PAYG) withholding and superannuation contributions, each component requires careful attention. In “Payroll Taxes 101: A Beginner’s Guide for Employers” we demystify these obligations and provide practical guidance to help you run compliant payroll operations with confidence.

Understanding the different types of payroll taxes in Australia

Australian employers must comply with a mix of state and federal payroll obligations. Below is an overview of the main taxes and contributions you’re likely to encounter and how they affect your business.

1. State-Based Payroll Taxes

• What it is: A tax imposed by each state or territory on employers whose total wage bill exceeds a threshold set by that jurisdiction.
• Key points:
  • Thresholds and rates: Each state and territory sets its own threshold and tax rate. For example:
    • New South Wales: threshold $1.2 million; rate around 5.45% (as of 2023).
    • Victoria: threshold $700,000; rate around 4.85%.
  • Grouping rules: Related entities may need to be grouped and assessed on a combined payroll.
  • Exemptions and concessions: Some industries and employment types may qualify for exemptions, rebates, or concessions — check your state revenue office for details.

2. Pay As You Go (PAYG) Withholding

• What it is: A federal system where employers withhold income tax from employee wages and remit it to the Australian Taxation Office (ATO).
• Key points:
  • How it’s calculated: Withholding is based on employee declarations (for example, Tax File Number declarations) and ATO tax tables.
  • Reporting and payment: Employers report and pay PAYG withholding either monthly or quarterly (depending on withholding amounts) and report through Single Touch Payroll (STP).
  • See the ATO for details on PAYG withholding and reporting requirements: ATO — PAYG withholding.

3. Superannuation Guarantee (SG) Contributions

• What it is: Mandatory contributions employers must make to an employee’s superannuation fund to help them save for retirement.
• Key points:
  • Rate and ordinary time earnings (OTE): The SG rate was 10.5% (as of 2023) and is legislated to gradually increase to 12% by 2025. Contributions are calculated on an employee’s OTE.
  • Minimum earnings threshold: Employers must contribute for employees who earn above the relevant threshold for the month (historically $450 per month, though rules have changed for some circumstances — check the ATO).
  • Payment deadlines: SG contributions are generally paid quarterly by the 28th day of the month after each quarter.
  • Full guidance is available from the ATO: ATO — Super for employers.

4. Fringe Benefits Tax (FBT)

• What it is: A tax employers pay on certain benefits provided to employees or their associates (for example, family members).
• Key points:
  • FBT year: Runs from 1 April to 31 March.
  • Tax rate: The FBT rate applies to the grossed-up taxable value of benefits (the headline rate is 47%).
  • Common fringe benefits: Company cars, low-interest loans, and certain entertainment costs. Some items, such as certain portable electronic devices and work tools, may be exempt under specific conditions.

5. Workers’ Compensation Insurance

• What it is: Insurance that provides wage replacement and medical benefits to employees injured or ill because of work.
• Key points:
  • State-based schemes: Each state and territory operates its own workers’ compensation scheme with specific rules and premiums.
  • Premiums: Depend on your industry classification, payroll size and claims history.
  • Self-insurance: Larger organisations may be eligible to self-insure if they meet strict criteria.
  • For safety and workplace injury guidance, see Safe Work Australia: Safe Work Australia.

6. Other state and federal payroll-related obligations

• Training and employment levies: Some states charge levies to fund training programs or industry-specific employment initiatives.
• Payroll reporting: Single Touch Payroll (STP) is the federal system requiring employers to report payroll information to the ATO in (near) real-time; most employers also complete annual payroll tax reconciliations with their state revenue office.
• Learn more about STP and reporting: ATO — Single Touch Payroll.

References:

1. Australian Taxation Office (ATO): www.ato.gov.au
2. State revenue offices — check your relevant SRO website for state-specific payroll tax rules and thresholds.

Employer and employee tax obligations

Both employers and employees have defined obligations to keep the tax and payroll systems working smoothly. Below is a clear summary of each party’s main responsibilities.

Employer obligations

1. PAYG withholding:
   • Withhold income tax from employee wages based on ATO rates and employee declarations.
   • Report and pay withholding through STP, and remit amounts to the ATO on the applicable schedule.
2. Superannuation Guarantee (SG):
   • Contribute the legislated percentage of employees’ ordinary time earnings to an approved super fund and make payments on time (typically quarterly).
3. Fringe Benefits Tax (FBT):
   • Calculate and pay FBT on eligible benefits provided during the FBT year, and lodge an FBT return if required.
4. Payroll tax:
   • Register with the state or territory if your wages exceed the threshold, lodge periodic returns and perform an annual reconciliation.
5. Workers’ compensation:
   • Obtain and maintain appropriate workers’ compensation cover and keep premiums and records up to date.

Employee obligations

1. Personal income tax:
   • Ensure PAYG withholding represents their tax position by providing accurate information (TFN, residency status) to employers; file an annual tax return to reconcile income and tax withheld where required.
2. Medicare levy:
   • Most residents pay the Medicare levy (typically 2% of taxable income); this is usually included in PAYG withholding calculations.
3. Superannuation contributions:
   • Employees may make voluntary contributions (salary sacrifice or after-tax) but must stay within contribution caps; funds report contributions to the ATO and the employee’s super fund.
4. Provide accurate details:
   • Employees must supply and update their employer with accurate TFN and other information that affects withholding and superannuation entitlements.

Filing and payment deadlines

Meeting deadlines avoids penalties and interest. The table below summarises common deadlines for payroll-related obligations; however, always confirm dates with the ATO and your state revenue office as rules and thresholds can change.

1. PAYG Withholding

• Monthly payers:
  • Businesses with annual withholding amounts between $25,001 and $1 million typically pay monthly — due by the 21st of the following month (example: February withholding due 21 March).
• Quarterly payers:
  • Small employers with annual withholdings up to $25,000 generally report quarterly. Common quarterly due dates are:
    • Q1 (Jul–Sep): 28 October
    • Q2 (Oct–Dec): 28 February
    • Q3 (Jan–Mar): 28 April
    • Q4 (Apr–Jun): 28 July
• Large withholders:
  • Those withholding over $1 million annually may need to remit within 7 days of each withholding event — check the ATO for exact rules.

2. Superannuation Guarantee (SG) Contributions

• Quarterly payment deadlines:
  • Q1 (Jul–Sep): 28 October
  • Q2 (Oct–Dec): 28 January
  • Q3 (Jan–Mar): 28 April
  • Q4 (Apr–Jun): 28 July
• Superannuation Guarantee Charge (SGC):
  • If SG contributions were not paid on time, employers must lodge an SGC statement and pay charges — typically due 28 days after the quarter in which the contributions were required.

3. Fringe Benefits Tax (FBT)

• FBT year: 1 April to 31 March.
• Lodgment and payment:
  • Self-preparers: due by 21 May following the end of the FBT year.
  • Tax agent lodgment (electronically): generally later — commonly by 25 June if a registered agent lodges on your behalf (confirm with your agent).

4. Payroll Tax (state-based)

• Periodic payments: Most states require monthly payments, often due by the 7th of the following month — specific dates vary by jurisdiction.
• Annual reconciliations: Many states set an annual reconciliation date in July — check your state revenue office for the exact due date and requirements.

5. Workers’ Compensation

• Premium notices: Payment deadlines vary by state but are typically required within 30 days of your insurer’s premium notice.

6. Single Touch Payroll (STP)

• Reporting: Employers must report payroll information to the ATO each pay run — on or before the day employees are paid.
• End of financial year (EOFY) finalisation: Employers finalise pay event information in STP so employees can access their income statements; check ATO guidance for any applicable finalisation dates (these can vary by employer size and circumstances).

7. Income tax returns

• Individuals and partnerships: generally due by 31 October (unless lodging through a registered tax agent and eligible for later dates).
• Companies and trusts: due dates depend on entity type and whether a tax agent is used — check ATO guidance for your entity.

Calculating and reporting taxable wages

“Taxable wages” refers to payments to employees that are considered when calculating PAYG withholding and, in many cases, payroll tax. Below are what to include, what to exclude, how to calculate, and how to report these amounts.

1. What are taxable wages?

Common inclusions:

• Salary and wages, including overtime, allowances and commissions.
• Bonuses and incentive payments.
• Leave payments (annual leave, long service leave, personal/carer’s leave where applicable).
• Employer superannuation contributions (excluding salary-sacrifice amounts, which are treated differently).
• Taxable fringe benefits (grossed-up values where required).

Common exclusions:

• Certain exempt fringe benefits (for example, eligible portable electronic devices or work-related items under specified conditions).
• Payments under approved workers’ compensation schemes.
• Genuinely exempt termination payments (for example, some genuine redundancy payments within prescribed limits).

2. How to calculate taxable wages

1. Determine gross wages: Sum regular salary, overtime, allowances, commissions, and bonuses.
2. Add fringe benefits: Include the grossed-up taxable value of any reportable fringe benefits.
3. Include employer superannuation (where applicable): Add mandatory super contributions unless an exclusion applies.
4. Adjust for payroll tax exemptions: Deduct any wages or payments exempt under your state’s payroll tax rules (for example, certain maternity payments may be exempt).

Example:

• Employee gross salary: $70,000
• Overtime: $5,000
• Bonuses: $3,000
• Travel allowance: $1,500
• Superannuation contribution (10.5% of $70,000): $7,350
• Grossed-up fringe benefit (car use): $10,000
• Total taxable wages: $96,850

3. Reporting taxable wages

• PAYG withholding: Report wages and amounts withheld to the ATO via STP each pay run and provide employees with annual income statements.
• Payroll tax: If your annual wages exceed the state threshold, register with the state revenue office, lodge periodic returns and complete an annual reconciliation.
• Fringe Benefits Tax: Lodge an FBT return and pay any FBT liability if you provided reportable fringe benefits during the FBT year.
• Superannuation: Pay contributions at least quarterly and report via SuperStream or your payroll software.

Tax credits and incentives for employers

The Australian government and state governments offer a range of incentives to support business growth, training and innovation. Below are some prominent programs employers may be able to use.

1. Research and Development (R&D) Tax Incentive

• What it is: A tax offset for companies conducting eligible R&D activities in Australia.
• Eligibility: Must be an Australian company carrying out eligible R&D; expenditure thresholds and eligibility criteria apply.
• Incentives: Refundable offsets are available for smaller entities and non-refundable offsets for larger entities subject to turnover thresholds.

2. JobMaker Hiring Credit

• What it is: A past program that provided incentives for employers to hire eligible young job seekers. Check current government campaigns for any replacements or similar programs.

3. Boosting Apprenticeship Commencements (BAC)

• What it was: A wage subsidy to encourage businesses to take on new apprentices and trainees during a specific period. Check federal and state apprenticeship incentives for current schemes.

4. JobTrainer Fund

• What it is: A partnership between the Commonwealth and states to provide free or low-cost training courses for eligible participants and employers in priority sectors.

5. Instant Asset Write-Off

• What it is: Allows eligible businesses to immediately deduct the cost of qualifying assets in the year of purchase (conditions apply, including turnover thresholds and eligible timeframes).

6. Payroll Tax Rebates and Concessions (state-based)

• Examples:
  • New South Wales offers job-related rebates under some programs.
  • Victoria provides regional payroll tax concessions in some cases.
  • Queensland has had payroll tax rebates for employers hiring apprentices and trainees.

7. Fringe Benefits Tax (FBT) exemptions and reductions

• Certain work-related items (laptops, tablets, phones, tools, protective clothing) can be exempt from FBT when specific conditions are met.
• Relocation assistance and other benefits may also be exempt in defined circumstances — consult ATO guidance for the full rules.

FAQs