Payroll tax vs PAYG withholding
These two "payroll taxes" are often confused but are completely different obligations. Understanding the distinction is essential for correct payroll management.
Payroll tax
- State/territory tax
- Paid by employer (business cost)
- Based on total wages bill
- Only above threshold
PAYG withholding
- Federal tax
- Deducted from employee pay
- Based on individual earnings
- All employers, all employees
Small businesses may never pay payroll tax if their wages remain under the threshold, but all employers must withhold and remit PAYG from employee pay.
State payroll tax thresholds
Each Australian state and territory sets its own payroll tax threshold and rate. Employers only pay payroll tax on wages above the threshold. These figures change periodically—always check the relevant revenue office for current rates.
Approximate thresholds (verify with state revenue)
Note: NSW and VIC have higher rates for very large employers. Some states have regional concessions. Mental health levies may add to the rate in some jurisdictions.
What wages are taxable
Taxable wages for payroll tax purposes include most employment-related payments:
- Included: Salaries, wages, bonuses, commissions, allowances, superannuation contributions, fringe benefits taxable value
- Excluded: Some termination payments, workers' compensation payments, certain contractor payments (depending on structure)
- Contractor payments: May be included if the contractor is "deemed" to be an employee under payroll tax rules
Multi-state employers
Employers with workers in multiple states must register and lodge in each state where they have nexus. However, there are harmonised rules for threshold calculations—you can't claim multiple full thresholds. States share information, and the threshold is generally apportioned based on your wages in each jurisdiction. Consult a payroll tax specialist for complex multi-state situations.
Grouping provisions
Related businesses may be "grouped" for payroll tax purposes, meaning they share a single threshold. This prevents businesses from artificially splitting to stay under the threshold.
When businesses are grouped
- Common ownership or control
- Use of common employees
- Tracing provisions for corporate structures
Grouping consequences
- Share one threshold across all entities
- Nominate designated group employer (DGE)
- Combined wages determine liability
Common payroll tax mistakes
Not registering when required
Employers must register within 7 days of exceeding (or expecting to exceed) the threshold. Late registration can result in penalties and back-taxes.
Ignoring grouping provisions
Related businesses that should be grouped but aren't may face audits and back-assessments. Revenue offices actively check for grouping compliance.
Excluding contractor payments incorrectly
Some contractor arrangements are deemed employment for payroll tax. "Labour-only" contractors and those under common law employment tests may be included.
Using wrong state thresholds
Each state has different thresholds and rates. Multi-state employers must apportion correctly and lodge in each relevant state.
Key takeaways
Payroll tax is a state/territory employer tax based on total wages above a threshold—it's completely separate from PAYG withholding. Each state has different rates and thresholds, and grouped businesses must share a single threshold. Registration is required once wages exceed the applicable threshold.
Accurate wages tracking is essential for payroll tax compliance. RosterElf's time and attendance system helps ensure all hours are captured accurately, providing reliable data for wages calculations and state revenue reporting.
